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Is there ever a good time to have a credit card? NO. NEVER. When you play with snakes, you get bitten.
"But Dave, I pay mine off every month."
CardTrak, who gets their information from the credit card companies, reports 60% of people don't pay your credit cards off every month. Cambridge Consumer Credit Index found that 47% of balance holders only make the minimum payment. You aren't paying it off every month.You're also paying more. A study by Dunn and Bradstreet showed that the credit card user spends 12 to 18% more when using credit instead of cash. After McDonald's began taking credit cards, they found that people spent $5 to $7 more per sale. It hurts when you spend cash and therefore you spend less.
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"But Dave, they give me airline miles."
Consumer Reports says 75% of the airline miles are never redeemed. You won't wear the hat or t-shirt. And the next time you are in the store that gave you a discount for signing up for a card, you will have forgotten your cash; you'll use the card and then carry a balance again.
"But Dave, I need it for travel and to buy stuff online."
Between media appearances and live events, I guarantee I travel more than most of you, and I do it all with a debit card. I don't have a credit card. I buy things online, stay in hotels and rent cars all the time using my debit card. The only thing the debit card won't do is get you into debt.
"But Dave, I have to build my credit."
Bankers, car dealers, and unknowledgeable lenders have told America for years to "build your credit." They are telling you to get debt so you can get more debt because debt is how you get stuff. Those of us who are debt free know that cash buys stuff better than debt.
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"But Dave, what about buying a house?"
Since you aren't "building your credit" you will need to find a mortgage company that does actual underwriting. That means they are professional enough to process the details of your life instead of using only a Beacon score (lending for dummies). You can qualify for a conventional 15-year fixed-rate loan if:
- You have paid your landlord early or on time for two years.
- You have been in the same career field for two years.
- You have a good down payment.
- You have no other credit.
- You are not trying to get too big a loan.
The big question is, What do millionaires do? They don't get rich with free hats, brownie points, or air miles. What do broke people do? They use credit cards. I rest my case.
Get additional answers to money questions by picking up your copy of Dave's The Money Answer Book.