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Author: wallywest00 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 310319  
Subject: Thoughts on credit (long) Date: 5/30/2001 11:50 AM
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I got to thinking the other day, is there ever ANY good reason to use a credit card, or to get a loan for that matter? Asside from the obvious emergency use why do we even have these stupid lumps of plastic?

From a financial planning perspective any high interest debt has to be your first priority. Pay it off, and stop that kind of spending. Once you get down to nothing but mortgage and possibly car loans as your only long term debt you can start investing. You'll almost certainly make better interest in the market over the long term than you're being charged on your mortgage so it makes sense to do that instead of paying down your house quicker.

But where do credit cards fit into the whole economic scheme? If you use them responsibly and always pay your balance you get the benefit of using someone elses money for a month. The only person I can see who could actually see a real advantage to that would be a successful day trader (oxymoron?). If you're in long term investing then a thirty day lag is not going to do you any good. So who really benifits from a credit card transaction? Not you, that's for sure. The vendor doesn't really get anything either, in fact they have to inflate their prices to cover the transaction fees. Sure, they get more business, but from a financial standpoint they'd be better off if everyone paid cash.

So that just leaves the bank behind the credit card. They get insane interest rates from the unfortunate many who don't pay their balance each month, and they get a percentage of every dollar spent. Which ultimately, in the form of inflation, ends up coming out of your wallet whether you use a credit card or not. Nice racket. They make a killing off of other peoples money and their "product" is nothing more than convenience. I don't find that "convenient" at all.

I'm thinking that later this year when my credit card debt is gone that I'm going to keep one or two cards for emergency use only and do most of my buying with cash. It won't make any great difference I know, but at least I won't be feeding the system any more.
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