by Ashley
Happy Valentine’s Day (or Singles Awareness Day, if you prefer)! : )
Here’s a fun little philosophical question for you….is using credit immoral?
Let me back up and explain the question a bit.
I’ve had credit cards my entire adult life (even though I didn’t get into debt until much later, my first credit card was at age 18 so I could “learn to use it properly”. See my debt story here).
Even when I paid off my last credit card back in June 2014, I never cut them up and closed the accounts as Dave Ramsey would suggest. Instead, I put most of them in our household safe. I still carry 2 with me all the time. One of them (my Target card) I use anytime I shop at Target so I can receive 5% off, plus I use it for online gift purchases for friends’ weddings/baby showers/etc since I save 5% AND get free shipping (I wrote more about how I use this method to give gifts for cheaper here). My other card (a Wells Fargo card) has the best reward program, so I use it for all big-ticket purchases (e.g., preschool tuition it automatically charged to the card monthly). I carefully track these expenses (and still use my debit card for day-to-day spending) and pay the balances in full each month. I haven’t paid interest a single time because I’m really vigilant about paying on time and I’ve never had any issues. Plus, I receive perks from these cards (a discount at Target, and the Wells Fargo card lets me use points to pay bills, receive cash, or get stuff free – I used it at Christmas to get the girls a really cool toy totally free).
I never saw anything wrong with any of this. This is the way to use credit, right? Make it work for you so you have some benefit, then pay it in full every month. I thought this was responsible credit usage.
Then I was listening to an old podcast from the Dave Ramsey show and someone asked him this very question:
Is it “okay” to still use credit cards as long as they’re being paid in full every month?
And Dave Ramsey’s answer surprised me a bit. OF COURSE he says no (he’s the “absolutely no debt/no credit” guy). Part of his reasoning is that studies have shown people tend to spend more when they buy with plastic (this part doesn’t bother me – same thing could be said for debit, not credit); another reason he gave is that people can fall into a trap of forgetting to pay on time and winding up paying interest (fair, but this hasn’t ever been an issue for me); and the final reason is what caught me off guard. He said that if you use your credit card to buy things and pay it in full every month, you are essentially ripping off the credit card companies. That is not how credit card companies intended for their cards to be used, and Ramsey basically likened it to taking money out of someone else’s pocket. Like it’s cheating the credit card companies. In other words….its immoral.
I had never thought of it that way before and it definitely struck me. I tend not to sympathize with giant credit card companies (especially as they are making money hand-over-fist off others and I’ve MORE than paid for all my “free perks” in the interest I’ve paid them over the past 8 years when I still had credit card debt). But still, it got me thinking.
What do you guys think? Is it immoral or in some way wrong or cheating the system to use credit cards if you pay them in full every month? What do you think is fair and honest for credit card usage?
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
I think some religions consider it but I do not. And Dave Ramsey, while clever, is a tv ‘star’ who gets paid by the reader / listener. A bit of shock radio maybe?
Very possible! I love listening to his show, but he definitely says some things for the shock factor. He has a business to run, after all, and those types of things get attention for sure!
Credit card companies get a merchant fee (a percentage of the total) on every single transaction/swipe. They are making money off of you or they would have changed the terms of the deal – they carefully watch data analytics and if people who paid in full were “costing” them money – they would change things. I’m surprised he said that because it is factually wrong.
I do not think itt is amoral. Credit card companies allow the cards to be used in that manner and maybe even encourage it with rewards programs. Besides, I think most companies receive a small fee from the merchant every time the card is swiped. The merchant agrees to this fee by accepting credit cards as a form of payment. I don’t see anything amoral about it!
As others have mentioned, credit card issuers make money every time you use your card because they receive an interchange fee (fee from the merchant). Interchange can actually be more profitable than interest.
From Wikipedia: “In the US Card issuers now make over $30 billion annually from interchange fees. Interchange fees collected by Visa[6] and MasterCard[7] totaled $26 billion in 2004. In 2005 the number was $30.7 billion, and the increase totals 85 percent compared to 2001.”
Nope, I don’t think it’s immoral at all. Credit card companies offer their service, with paying off the balance each month as an option, so you are free to use it that way. If they did not want people to be doing this, they could create different rules or charge extra fees for doing this, but they don’t. That is because, on balance, it is better off for them to do it this way. They make enough money off of merchant fees and people that don’t pay their balance, that it more than covers the rewards they pay to people who pay in full every month.
It is the same with grocery stores selling a few items at a loss each week (loss leaders) to get people in the store. They expect that people will come in to buy those, and then also buy enough profitable items that the store will make more profit. They know that, on balance, it is better to take a loss a couple items, to make a bigger profit on others. This doesn’t mean that you need to feel obligated to buy more when you go into the store for cheap bananas. It was the store’s choice to offer them cheap, knowing that some customers will only go to buy those items, costing a little money, but that will be more than made up for by others who go there for that item, and end up doing their whole weekly grocery shop there.
If this was, or became, unprofitable for the credit card companies or grocery stores, they would stop doing this, or put other policies in place to prevent that type of use. They hire many smart people who understand how these policies will be used, so you can be pretty sure that large, well established companies are doing what is best for them, and you don’t need to worry about driving them out of business by using their products in one of the ways they allow.
I love the cheap bananas analogy!
Great point about the loss leaders!
No way! As previous commenters said, the credit card companies make tons of money off merchants. I used to have a small business that accepted credit cards; the cc companies charged a per-transaction fee and a percentage of the transaction amount. It was a big expense.
Credit card companies like Target offer incentives like this so you shop at their store over another one. You shop at Target to get free shipping and 5% off, so even if they make no interest from you, they are glad to have your business.
I don’t thinks it’s immoral. However, I don’t use them at small business because of all the fees that it costs them. There’s the standard merchant fees. Plus, did you know most those reward dollars are paid for by the merchant, too?
This is SUCH a good point! I have a friend who owns a small bakery and has talked about how the merchant fees are an absolute KILLER! She only pays cash anytime she’s at a small business. This is really something to think about because I like to support small businesses and paying CASH is a great way to do so!
I like everyone else’s points but wanted to throw in that I use my debit card or cash for small businesses because it is usually cheaper for them (I usually ask).
CC companies are businesses. If they weren’t making money, they would change their business model or go out of business.
Do you mean “immoral?” Amoral means neither right nor wrong.
Personally, I don’t think it’s wrong to use credit cards and pay them off each month. For someone who has that belief, there are American Express “charge cards” that are designed to be used and paid off monthly. Convenience without the guilt!
I don’t have statistics, but a large percentage of the credit card companies’ profits come from fees (late payment, over balance, balance transfer, etc.). Along with the transaction fees, they make money regardless of how many customers pay their balance in full each month.
Oh boy, how embarrassing! I was thinking amoral like “a” (root from Latin) meaning “without” (so, without morality). But when I double checked good old Merriam Webster, you’re totally right (amoral means without any moral implications right or wrong). Thanks for pointing this out, I really hate when I use language incorrectly! I’ve edited the post to change “amoral” to “immoral” throughout.
This “study” assumes that the spending level is a result of the choice of payment. But, isn’t it possible that it is the other way around? That I choose my method of payment based upon how much I am spending? Or to get the extra protection offered via choosing a credit card?
If I am going to the electronics store and spending 1k, I am more likely to whip out a Visa, since: (1) I don’t want to carry 1k cash in my wallet, and (2) if I have a problem and the merchant won’t help, I can take the matter up with Visa.
If I am going to the electronics store to pick up a small item under $20, I am more likely to just pay cash.
I used quotes around the word study, because Dunn & Bradstreet says they have never published any such study. This is well-documented, just Google it.
That’s so interesting! I’ve heard these study statistics thrown around for a long time now (like, years!???) and never even thought that they might be completely fabricated! I just spent about 5 minutes trying to google any actual study (not a second-hand report, but the original study) where they have shown higher spending with plastic versus cash and couldn’t find anything! Granted, I only spent 5 minutes but still….quite surprising!
we have been using our credit card this way for almost 20 years. in those 20 years we have never paid one penny in interest. if this was hurting the credit card company in any way they would have cancelled our card many years ago.
i love dave ramsey but don’t agree 100% with everything he says.
no, i have no sympathy for all those “poor credit card companies”.
Totally agree! I have to pick & choose the things Ramsey says that I agree with. On the whole I think he’s doing a great thing to try to make Americans more financially stable (I think being debt free is a great mission), but I surely don’t agree 100% with everything he says. I, too, have no sympathy for the credit card companies! Great job using credit cards for 20 years without paying a penny of interest! That’s fabulous!
If he said that it was immoral – that’s about the stupidest thing I’ve ever heard! I listen to Dave Ramsey all the time and a lot of things he says are just wrong. Now, I get it – if you’re in debt and clueless about money, he gets people started. But, if you have your act together a lot of his things are just baloney, and worse just done to promote his products.
Here are a few Dave Ramsey totally WRONG ideas –
For example, the debt snowball. He says you should pay off your lowest balance debts first – even if they are at a much higher interest rate (Would you rather pay on a $10,000 debt at 20% interest or an $8,000 debt at 4%?) He’s say the $8K because its smaller.
Don’t collect credit card points – because millionaires never cite this as why they became a millionaire. Hello – they probably didn’t become millionaires by saving on their car insurance either, but that doesn’t mean you shouldn’t do it if you can! As far as paying off your balance as being immoral – I’d say its more immoral that these companies charge some folks 28% interest.
Don’t invest in ETF’s and low cost, no load mutual funds – instead use his ELP advisors and don’t be very concerned about the fees they charge. He NEVER tells callers to talk to their advisors about how much they are charging and how they get paid. NEVER.
I’m with you on the not believing everything Dave Ramsey says. But to play a little Devil’s advocate, I gotta say that the snowball method can work because of the huge psychological boost you get when you pay off the smaller balances first. I’m not arguing that someone should pay a 4% interest over a 20% interest (and if you’ve followed my debt journey you’ll see I skipped around on my credit cards, paying a higher-balance/higher-interest card – WF – before a lower-balance/lower-interst card – BOA). Just saying that it does have its benefits.
Never used any ELPs so can’t comment on them specifically, though I agree they must get paid SOMEHOW (read: fees), and you’re right I’ve never once heard Ramsey tell callers to ask about how their advisors get paid.
My opinion, and hopefully not unduly harsh: Dave Ramsey, Suze Orman, etc — all have some decent advice if you are horrible with money.
Once you get better financial habits and a more solid financial footing, best to look elsewhere…
With respect to the “immorality” of credit card usage, I think it’s ridiculous. They set the rules and would not do as such if it was not to their ultimate advantage. As others have pointed out, ultimately they just want you using their card over cash or someone else’s card.
I personally vastly prefer using credit cards over cash: more secure, automatic expense tracking, rewards, warranty extensions on high-ticket items, extra travel insurance, etc. And no, I have never paid any interest!
I agree and always try to keep in mind that Dave Ramsey is a mega-profitable businessman and not a philosopher. Credit cards make money every time you use the card as others have said. The merchants lose money every time you use the card. We live in a practically cashless society and checks are rapidly disappearing. What would he suggest you do?
Ramsey says to use debit. He also claims that some debit cards now also offer rewards programs (I’ve never seen any, but I guess it could be true). I’m not sticking up for the guy, (I’m clearly pro-credit since I still have and use them), but just explaining his POV on the subject.
Joe, honest question – where else do you look for financial advice? I’ve never been an Orman fan (don’t know why, something about her is off-putting to me), and although I don’t always agree with what Ramsey says I like listening to his show. I find it motivating (especially the debt free calls) and like to hear the caller stories. BUT I feel like I’d fall into the “better financial habits and more solid financial footing” category at this point in time. Do you have anyone you recommend (for books/blog/etc)?
Can’t speak for Joe, but I completely agree with him that there are vastly superior sources for financial information. One such source is The Bogleheads Wiki.
https://www.bogleheads.org/wiki/Main_Page
There are forums, too. Populated with many very knowledgeable investors, some semi-famous, and plenty of folks who are still learning.
https://www.bogleheads.org/forum/index.php
I’ve been following Trent at The Simple Dollar (there are now several other writers there, but he is the creator of the site and my favorite to read) for years. He offers a wide range of content that is suitable for readers with vastly different financial situations. I feel like I’ve come a long way with my own finances, with plenty of room for improvement still, but I don’t think I’ve outgrown his content because of it. He is a good source of motivation for me! The site is www.thesimpledollar.com.
I have read The Simple Dollar on and off, too. Please check the “facts” you read on the site, especially anything having to do with taxes. Trent makes many factually incorrect statements, and blocks comments from those who point out his errors.
Thanks for pointing that out. Fortunately, I am not dependent on his site for facts as it relates to taxes. I tend to get the most out of the posts regarding mindset, habits, etc. I’ll be reading with a more critical eye going forward.
I have used The Simple Dollar and Get Rich Slowly as knowledge builders and MSN Money, Personal Finance too, but all three have declined in the content over the last 3 years or so, so look to the archives (MSN Money seems to have purged a lot of their old (and good) stuff).
Dave Ramsey is also a Christian, and so part of his philosophy is that credit enslaves you to the lender. In his worldview, enslaving yourself to someone else takes away from your ability to serve God. This outlook spoke to me, I don’t think it’s exactly mainstream Christian thought, although not crazy either. So there may be a faith based morality about debt but not a secular one.
One thought on credit card rewards – even if you pay in full, the rewards are possible only due to others who are indebted, so that could be a moral quandary. But the merchant fees thing may negate that argument.
Our debit card has rewards. 15 cents a swipe.
Good point about the faith-based reason for not liking credit.
Gotta ask, what bank is your reward debit card through? Is it a national bank or a local credit union? 15 cents a swipe sounds pretty good for day-to-day transactions (still probably higher rewards through my CC for higher $ purchases since reward points are based on percentage of purchase price)
I would agree with a previous poster that Dave’s message is great for people who are buried in debt. And the thing about paying off high interest first because it is better math, well if I was good at math I never would have gotten myself in so much debt in the first place 🙂 Also, his website has a lot of free information available to anyone with access to the internet.
I’m not completely on board with all of Dave’s teachings ie: I use a credit card that is paid in full every month, but he certainly motivated me to quit crying and start working when I was in a really bad money situation.
And I think Adam brought up a very good point about the meaning behind Dave’s message that debt is bad for you. I’m not religious, but I do take to heart the idea of never being truly free if you are monetarily indebted most of your life.
Check out David Bach. I read one of his books awhile ago. And remember to check them out from the library! And it looks like there is a lot of information on his web site.
I love Dave Ramsey, but there are often times like this where he’ll spout off ‘facts’ that aren’t quite accurate or when his logic doesn’t quite make sense.
For his first argument, if people truly do spend more money when using plastic instead of cash, what is the benefit of a debit card over a credit card other than not having to remember to pay the bill at the end of the month? I don’t use a credit card unless I already have the cash in my checking account to pay for whatever I’m buying, so for me the only difference is the $500-$800 in cash back I get each year.
Secondly, don’t make it sound like missing payments is a trap that banks want you to fall into, it’s just a consequence of being lazy or irresponsible. Yes, there are some people that this happens to, but is extremely rare if you are just a little organized. My impression is that he doesn’t have as much experience interacting with banks as a responsible borrowers. I have been using credit cards every month for over a decade and have never paid a dime in interest. One time I stupidly missed a payment due to a miscommunication with my spouse and when I called the next day to make the payment in full, they were nice enough that they waived any late fees or interest without me even asking. This never showed up as a late payment on my credit report either. This was a large institution and happened long before another card company began advertising that this is their policy. If I was a serial late payer, I doubt I they would have been so generous.
On his last point, he is greatly mistaken. As others have mentioned, credit card companies like Visa and MasterCard could care less whether you pay your bill in full or not since they aren’t the ones actually lending you the money and they make fees for each time you use the card. Store brand credit cards tend to be a very good deal for the businesses that sponsor them not because of fees and interest, but because the ‘swipe fees’ are negotiated to involve some type of rebate from the credit card company to the merchant. These deals are what caused Costco and JetBlue to recently announce they are ditching American Express as their card of choice.
As a side note, Ashley — if you wanted to get a Target debit card instead of the Target credit card, they offer it as a debit card and you still get the 5% discount, they just link the card to your checking account.
FYI, you can get a Target debit card and reap the same 5% and free shipping reward. It’ll be connected to a checking account. You just have to bring in a cancelled check and they’ll set it up for you.
I should definitely do this! Would save me from having to pay the monthly bill (one of the very few I still write a paper check for) since the money would be automatically deducted!
Interest concept, but no I do NOT think it’s immoral to use credit cards for their perks. If it was so horrible, credit card companies wouldn’t offer them right?!
Credit cards and rewards programs are legalized extortion. They are economic parasites. I would argue immoral also. No better than a protection scheme.
Nothing is free. Costs for items are increased for all customers by the merchant to fund credit card fees and reward programs. Someone who benefits from rewards programs is really getting that benefit to the detriment of the people who have lower reward levels (poorer people who can’t qualify for the good cash-back cards, or people using cash), or from people paying interest on the credit cards. These programs cause a forced transfer of wealth from the poor to the wealthy, and to the card or program provider. It’s like a vampire that bites into the neck of transactions between merchants and customers that you can’t avoid.
The credit card and rewards companies have enough clout and leverage to effectively FORCE merchants to participate and pay the interchange/reward program fees (or else the merchant won’t get the business.) The companies force the merchants to not pass on the cost of using the credit/rewards programs to the people who benefit from them. The credit card agreements say the merchant can’t charge non-participating customers (paying cash or not in the loyalty program) less than participating customers. This FORCES people who do not want to participate in the program to fund the cost of those using rewards and credit cards. The poorest painter or fast food employee who can’t qualify for rewards cards, or who pays cash end up paying for the lawyer’s trip to France and 5% reward – and the people who do not participate have NO CHOICE in the matter. You can argue that they can shop somewhere else, but pretty much all stores have credit cards and loyalty programs. How moral is that? Not much different than pulling money out of someone’s pocket, keeping some, and giving some to other’s who also pay you protection money and participate in your extortion plot.
Maybe this seems like an extreme viewpoint, but it’s not. Credit cards and rewards programs are like economic vampires that merchants, participating and non-participating customers and point collectors don’t truly have the option to refuse. If you refuse you lose business or lose out financially. The biggest winner is the credit card company. Merchants are smart and will not lose – they pass the costs on to customers. The smarter, richer customers get rewards but still pay inflated prices – maybe they break even.. The poorest, least sophisticated customers lose the most, even if they are noy knowingly participating in the scheme at all. Evil, immoral, wrong, unfair, extortion – whatever you want to call it.
Why can’t I pay cash to someone for something and get a price that does not have costs buried in for rewards programs and credit card fees?