February 8
Stewardship of Treasures
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This post was originally posted on ChristianStewardshipCoaching.com April 25, 2015.
One of the most common answers that I've gotten back from folks when I explain that we don't see the reason to use credit cards is:
But you get points/rewards/travel miles etc. that you can use for things like travel hacking to fly for free to wonderful locations.
Much like what Steve Stewart at MoneyPlanSOS.com says in his podcast and post about why credit cards are against his religion, I've got to run things through a filter that includes my religious beliefs when thinking about how I live my life.
First off let me start, that the real danger to using credit cards is that you can spend more than you have. In fact you can easily go into debt using a credit card. They lend themselves to overspending and to having a bit of the spoiled kid syndrome of wanting everything and feeling entitled to it, so they just put it on the credit card.
As Steve mentions other issues include lowered accountability and increases the money fights that couples have as well. And I agree 100% with what he laid out.
Now let's take travel hacking as an example of rewards that you can earn by using credit cards (though honestly the argument works if you think about cash back, reward points, or nearly anything else that credit cards offer).
If you aren't sure what travel hacking is you can read a detailed overview here.
Basically the idea is that you use credit cards that give you travel points for your spending. I know of at least one couple that runs every single expense they have through one credit card and earns enough points to travel several times a year without paying for the airline tickets.
Well for many people they run into the trap of buying things that they really don't need because after all "we earn points." That's one way that credit cards can increase your spending and cause you to go into debt.
Now normally about here is where folks chime in with:
"but I always pay my card off every month in full, so I don't pay interest."
Well that may be true but I challenge you to audit your card statements over the last few years and really make sure that's true every month before you say that.
But let's give you the benefit of the doubt, let's say you do pay off 100% of your cards every month and carry no debt on your cards.
What's wrong with getting back points or miles that I use for my travel?
Who pays for those points? If you think about it there is no way that you really get a FREE reward or airline tickets right?
I mean the airline has to stay in business and that means they have to pay their expenses. So you know the credit card company is paying them somehow.
So if the credit cards isn't giving you free points how do they pay for them to give them to you?
When it comes to credit cards there are two basic ways they make large amounts of money from consumers for the convenience of using a credit card.
1. Transaction fees
2. Interest Payments
So let's take them one at a time.
Transaction fees are basically a merchant fee that the merchant pays to the credit card company when you use a credit card at a place of business. These fees range but are around 3% of the cost of the transaction and often have a flat fee of a few cents per transaction as well.
But here's the thing. If you pay using a debit card and select pay as credit these same fees are charged. Sometimes they are lower than they are for credit cards but there is still a transaction fee.
So this money has to be accounted for in the price of goods and services. Merchants will sometimes offer a small discount for paying with cash due to these transaction fees, which they have to cover in the price of their goods and services.
However this by itself isn't the major reason that I implied that getting rewards may be a sin. In fact if it was then using your debit card would be a sin. I actually try to avoid using my debit card, especially at smaller businesses for this very reason. It does drive up the cost of goods over cash due to the merchant covering the transaction fee.
So let's take the other one.
So we all know that credit cards charge interest on balances that are not paid in full each month. Well those interest payments pay for many of the travel rewards as well.
But wait I hear you saying, up above we took it as a given that you pay off the card each and every month. If I do that I pay no interest.
That's true you don't. But credit cards for most folks encourage overspending and the "I deserve it now" syndrome that leads to a balance. As of the latest stats I could find average credit card debt hovers around $7,000 dollars with around 45% of households having a balance each month.
This means roughly half of the people in the country have a balance and are paying interest.
Half!
So even if you truly do pay yours off each and every month, half the people you know don't.
Honestly by the same token I've coached many people who say "I pay it off every month" and when we look into their actual statements for the last year there are several months out of the year where they didn't actually pay it off. That means, even if it's a small amount, they still paid some interest.
I mean who cares if someone else pays interest. Me I got free airline tickets (well almost free I paid some interest and that pesky annual fee, but I got them nearly free.)
Matthew 22:36-40 Jesus is giving his answer to what is the greatest commandment. Jesus says that the first is to love God, the second love your neighbor as yourself.
Well for my family we don't want debt. And in the scenario I laid out neither do you. After all we said that the balance was paid each month.
So if you don't want debt for yourself. And you love your neighbor as yourself.
Then you have to not do things that encourage people into bad behavior and debt.
Now don't get me wrong. I'm a full proponent of Personal Responsibility. If someone chooses to overspend and get into debt that's their choice and something they have to work through.
If horrible things happen to a family and they don't know any other way and they use credit cards to solve the issue it's still their responsibility to pay their debts.
I don't really think that it's a sin to use a credit card. I don't think you force anyone into debt by using your card and getting reward points.
But I do think the need to offer rewards and pay for them encourages credit card companies to target markets that they've found historically get into debt and pay lots of interest.
That's how they make money.
So you using your card and paying it off every month. In the eyes of the credit card companies makes you a not so great customer.
They are interested in those families that get into debt and stay in debt paying interest every month for their entire life.
So it is a choice and one that potentially harms your neighbor, so its one that, at least in my family, we choose not to play.
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