Comments on: Credit Cards Just Loans Wrapped In Pretty Plastic

By: Grimalkin

Grimalkin — Wed, 18 Mar 2009 01:22:36 +0000

That’s a great way to think about credit cards! Personally, I’ve always thought of them as being the same as debit cards. I can’t spend money with a credit card unless I have it – in my bank account – to spend. It’s really dollars I’m spending, not some magical credit that is all airy-fairy.

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Sun, 15 Mar 2009 02:54:26 +0000

Really nice approach to explaining this complex topic– I will try it with my own kids . . .

By: Weekend Link Love: back among the living (mostly) | Simple Mom

Weekend Link Love: back among the living (mostly) | Simple Mom — Sat, 14 Mar 2009 08:02:15 +0000

[...] Credit cards are loans wrapped up in plastic :: Frugal Dad – amen, brother [...]

By: Abigail

Abigail — Fri, 13 Mar 2009 21:56:26 +0000

Yep. Credit cards are loans (unless you have a very careful budget and pay in full each month).

But more importantly they’re TERRIBLE loans. Who would ever take out a loan at 10 %?!

By: Silver Rose

Silver Rose — Fri, 13 Mar 2009 07:37:41 +0000

Credit cards are not only a loan that costs you money – when you use one in a store, you cost the store money too (in the form of an interchange fee of about 2-2.75%). That’s why small retailers prefer that you use cash or debit cards. In the current climate retailers profit margins are waifer thin – they don’t need credit card companies skimming off them either.

I wish everyone could would go back to cash or debit cards – individuals would be wealthier from not paying interest, and retailers would be better off from not paying the interchange fee. The credit card companies would suffer though…

By: Tyler

Tyler — Thu, 12 Mar 2009 22:05:06 +0000

I’ve never understood how people lose their perception of money when using credit cards. I’ve had a credit card since I was a freshmen in college, and only once have I not paid the balance in full at the end of the month (the one time was this Black Friday, when I bought an HDTV after having already bought Christmas gifts. But I’ve yet to see the TV within $100 of the same price since then, so the $30 I paid in interest was fine by me.)

By: Craig

Craig — Thu, 12 Mar 2009 19:15:51 +0000

People are naturally going to spend more using a credit card because they don’t have to think about it, they know they can worry about it in the future.

By: Dave

Dave — Thu, 12 Mar 2009 19:08:42 +0000

If someone is to shift their thinking to credit cards being a loan, then what were they thinking before? And how did that other thought survive the first payment? Maybe I’m being naive here but “credit” and “loan” are two words that are difficult for me to separate. If you don’t pay your cards off every month, then you should shop around for a low interest rate. If you use them for convenience and consumer protection, then shop for features. I think some loans can be good for people just starting out. You typically need that first car to get that first job, for example. Once you get on your feet, you should be careful about loans except for some really big ticket items like a home. That doesn’t mean you can’t have credit cards – they’re very handy for purchases over the internet and phone – just pay them off ever month – no exceptions.

By: IRG

IRG — Thu, 12 Mar 2009 18:59:30 +0000

Great perspective to take with credit cards.

Another way to look at it is to estimate what the REAL cost of a purchase is, if you can’t pay it off in the next cycle. How much do you end up paying in fees when you buy using credit cards, have a high balance, and usually, high monthly finance fees.

I believe it was Suze Orman who years ago would document how much more you spent buying stuff “ON SALE” with a credit card. Example: Vacation, $1,000. But total cost was closer to maybe $1,200 or more because you already had a balance and you incurred additional fees of $200.

If you see something good on sale, but you can’t afford it, and you incur credit card fees, factor in those fees. You’ll see that it’s rarely “on sale” anymore.

At least that’s how we look at things when considering a purchase. what will be the final REAL price, if we can’t pay it off in the next cycle. That does a lot to discourage sale buying.

Don’t just look at the price you are being charged. But what it costs you, in the end.

By: Steven@hundredgoals.com

Steven@hundredgoals.com — Thu, 12 Mar 2009 17:39:07 +0000

If used wisely, credit cards can be beneficial to the user. The flip side of that is that if you slip up, you are in a world of trouble. I finally paid off my final credit card a couple of weeks ago and will only use it when I have the cash in my bank account to pay off the transaction immediately.

To some people it may not make sense to use a credit card when they have the money, why not just pay right away? I guess more than anything it is just the convenience. We’ll see how it works out. If I can’t do it that way then I know to just get rid of the card.

PS- I’m not using it for day to day expenses, but rather once in a long while expenses, mostly to keep the account active and provide cash back rewards.