A Frank Discussion About Credit Cards

Patrick wants to know why Dave doesn't like it when people properly manage their credit cards and pay them off each month.

QUESTION: Patrick in Missouri wants to know why Dave doesn’t like it when people properly manage their credit cards and pay them off each month. They pay no interest and he even got a free trip to Europe from using it. He and Dave have a discussion about it.

ANSWER: I doubt I can, but I will answer the question. Number one, the credit card company did not give you a free trip to Europe. The credit card company is not going to lose money on transaction after transaction after transaction year after year after year. The fallacy is that you feel like you have somehow outsmarted a multibillion dollar company that studies human behavior at unbelievable levels. This particular calendar year, you may have beat them.

Over the scope of your life, you spend more when using credit. When you use a credit card over and over and over with the idea that you’re getting a free trip to Europe because you’re building up your miles, you spend more. Study after study after study has shown that human behavior shifts. An example would be at McDonald’s, when they started taking credit cards many years ago, they found that the person using plastic at the counter rather than using cash spends 47% more because when you actually use cash in day-to-day expenditures, you spend less. I understand you’re using it primarily for business, which is what you were saying. That exact example would not necessarily apply to you.

In a good way, you are very unusual. It’s not going to bankrupt you. You’re not playing over in the stupid zone, but it’s more of a hypothetical or philosophical discussion. I have found—and the credit card companies have found—that on average, you would be less than one half of 1% of their customers. Can 0.5% people handle snakes and not get bitten? Yes. It doesn’t mean I’m going to start recommending snakes.