Christopher Elliott wrote this morning “Yes, I called credit cards a scam — wanna make something of it?”
Why yes – yes I do.
There are two main thrusts to Elliott’s argument:
- That the benefits consumers dervice from credit cards are a scam
The cards that promise a gazillion points you’ll never be able use, charge you an outrageous annual fee and sky-high interest rates? … Those are obvious scams, waiting for the heavy hand of the Consumer Financial Protection Bureau to end them. And it will happen, trust me.
- That consumer debt means that credit cards are the problem
Consider our debt levels. Americans owe $901 billion in credit card debt. The average household — average household — has $15,677 in credit card debt.
The number has declined slightly over the years, but not because we’ve paid off our debts. One survey suggests it’s because we’re defaulting on the debt.
What does Elliott want instead of credit cards? He admires payment mechanisms that settle transactions without the possibility of debt (presumably like debit cards).
What if we could avoid these slippery, debt-inducing financial instruments and use something more responsible? Other countries are already turning to direct withdrawals and mobile payments as an alternative to plastic, which offer many of the same benefits as a traditional credit card.
What don’t they offer? Well, the opportunity to get neck-deep in debt, for one.
But consumer credit, and worries about debt, aren’t a function of credit cards. Indeed, consumers have needed to smooth out income and meet immediate purchasing needs long before credit cards were first introduced (Diners Club, 1950). And hand-wringing about it is just as old.
- “Running in Debt” (1873)
- “Borrowing Trouble” (1877)
What’s more, consumer debt isn’t getting worse. Since the 1960s the percentage of household income used for interest on consumer debt has remained constant.
But how can this be? It’s quite simple. Credit card debt has gone up as it replaced other forms of consumer debt like “buying on time” directly from stores. As a result, total debt repayment obligations for the typical low income household are lower today than in 1980.
We used to buy from large department stores with their own credit operations. Credit cards made it possible for us to buy from anyone, from small retailers without their own credit offerings, from individuals on the internet.
And of course credit cards do offer superior consumer protections as well that other forms of payment don’t match. There are protections against fraud, and chargebacks for non-delivery or subpar delivery of goods and services, not to mention extended warranties and purchase protection for defective or damaged items.
Ultimately credit cards aren’t the cause of the debt, they’re merely the most convenient and advantageous mechanism of payment and a better way to pay over time than alternatives that came before them. In fact, The Onion perfectly summarizes the role of credit cards compared to options faced by consumers otherwise.
In the end, it seems like Elliott just resents his choice of credit card?
Like most Americans, I use a credit card. I hate it. It charges a confiscatory foreign transaction fee, lets me collect bogus “points” that are difficult to redeem, and the interest rate is borderline usurious. I hold my nose when I use it, and I always pay off the balance at the end of the month.
It sounds like Elliott just has the wrong card. If he travels internationally, there are plenty of options that award perfectly valuable points that are easy to redeem which do not add foreign transaction fees.
I agree that it’s best to always pay off the balance each month. But if you need a car repair in order to go to work, and don’t have the cash to pay for it, it’s an investment to pay for that over time. The alternative is far worse. And fortunately there are credit card products that offer low interest rates, or 0% and no fee balance transfers. Not everyone can qualify for those, but for those who can’t the alternative — payday loans and the like — comes at a much higher cost.