There are definitely some very clear reasons why people use them, and I think that to some extent, they are distinctly different. What are even more divergent are the motivations for using them.
What’s your motivation?
I think it all depends on where you are on the saver/spender continuum. Those motivated by saving will think about using credit cards for reasons that will help along those lines. Those motivated by spending will see credit cards as a tool to get more.
This leads to four reasons why people might use credit cards:
Reason #1: To Buy Things That Aren’t Affordable Now
This, to me, is NOT a good reason to use credit cards. Let’s get that out of the way up front! Yet, I suspect it’s a common reason that many will use cards.
Let’s say someone wants to go out and buy a $1,000 TV. However, withdrawing $1,000 and paying now would be impossible due to cash flow considerations, in light of other fixed expenses. In this case, instead of buying something much cheaper or making do with what is already owned, the shopper will simply charge the $1,000.
The $1,000 can then be paid off over a more comfortable length of time. Maybe it would be easier to pay off in 3 to 6 months. In which case, there would be interest paid on the balance. Not ideal.
Reason #2: To Get Rewards
I don’t really see this as a concrete reason to actually make purchases, but it’s a good alternative if you know you’re already going to buy something anyway. In those cases, why not get some additional rewards? I’ve obtain a few flights through the normal course of spending.
The risk is getting caught up in spending in order to get rewards. That was never a problem for me, but I can see how people do this. It’s kind of like a grown-up version of Chuck-E-Cheese – you know, where kids buy tokens to play games, win tickets, and then redeem the tickets for prizes. Of course, those prizes are not worth much, so it’s like throwing good money after bad for the “reward”.
Yes, I know those games are fun for the kids, by the way. That part is cool. I’ve spent enough there on them. But kids everywhere are thinking of the prizes without considering the cost to the parents – which is how I envision some grown-ups spending to get rewards.
But again, if the spending on things you would already buy, why leave rewards on the table by ignoring them?
Reason #3: Convenience
For me, this has been the main driver behind the use of credit cards. When using cash, it means getting back change. Bills are fine, but coins are not so great to carry around. I wonder how we did this back in the day. It seemed so totally normal then, but it’s “old school” now – at least to me.
Charging makes it easy. Of course, it’s vital to make sure that you pay your credit card balance in full when the bill comes. If you do that, without resorting to reason #1 we described above, credit cards can be a no-brainer to use. Frankly, I charge most things these days.
Reason #4: Tracking
This one’s for the personal finance aficionados out there. Tracking expenses might have been really tedious at one time, but it’s not a cumbersome exercise these days. The benefits of knowing where you money is being spent can be huge.
If you use cash for most purchases, that adds a lot more manual work to the process of tracking. Using a card makes it so much easier, given the resources available to track in a mostly automated fashion
Bottom line: There are bad, okay, and good reasons to use cards. For me, convenience is the primary reason, with tracking a secondary reason. Rewards are not a reason, but way to choose which card to use. Using a card as a form of borrowing is a no-go for me though!
My Questions for You
Of the four reasons to use credit cards above, which ones apply to you?
Are there any other reasons you like to use cards?
Have your motivations changed over the years?