A few days ago, we published a delightful article by one of our portfolio managers, Phoebe Jin, on how she uses credit card points to travel the world.
It sparked a lot of discussion at the office.
And maybe a little jealousy. I assume. I wouldn’t know anything about that, though.
One thing I do know is credit cards are nearly always a controversial subject.
I got my first credit card when I was 20 and I was planning to backpack around America for a few months. I felt as though I needed a backup payment method. I didn’t use it until the very end of the trip when Greyhound lost all my luggage (forever!) and I needed emergency supplies.
As such, when I arrived back in Australia, it carried a small balance.
Sadly, this is when I first learned about minimum payments and due dates and interest rates. I’m sure the card arrived with reading material, and I’m equally sure I skimmed over the fine print.
So, I panicked. I decided credit cards were evil. And I grabbed a pair of scissors, gave the card a quick snip down the middle, and placed the two pieces in my wallet.
(That decision proved quite embarrassing when I was unable to find my debit card at the dentist a few months later. I had to hand over the two halves of my credit card and say, “you’ll need to process this manually,” all while trying not to drool thanks to my very numb mouth.)
For years after that, I viewed my credit card with a sense of trepidation. Almost as though it was a threat, looming large in my wallet. As though I had no control.
That’s a starkly different attitude to the one Phoebe has!
Which brings us to the question I posed to my Spaceship colleagues: are credit cards evil?
Some people were succinct. “Yes,” one wrote. “No,” said another.
Others were wildly wordy. I shall not name names, but they know who they are.
And one very wise man (who can fire me if I say otherwise) gave an answer I got a kick out of: “It’s about whether you use the credit or the card.”
At Spaceship, we believe in treating money and financial products as tools at your disposal. But it’s how you wield these tools that counts.
If the sole purpose of your credit card is to enjoy access to credit (i.e. money you don’t actually have), you might be doing yourself a disservice. If you find yourself regularly paying interest on your credit, it might mean you rely too heavily on credit as a backup payment method, instead of instilling smarter spending and budgeting habits.
But if you think less about the credit and more about the card, you might find your credit card can be a valuable tool for managing spending, among other things.
In fact, credit cards were invented for this purpose; they allowed middle-class consumers access to a “buy now, pay later” system that was particularly useful as technologically advanced goods flooded the market and replaced farm tools, wagons, and basic household items.
Some use their cards for this purpose now.
They might buy, say, a television with their card. Assuming they keep track of their spending and make their payments on time, you could say they’ve made smart use of it.
Some people use their cards to accrue rewards points (as we saw with Phoebe), cash back offers, discounts, sign-up bonuses, and/or exclusive offers.
Others use their cards to build credit, perhaps as they think about the future and what they’ll want their credit card report to look like if they need, say, a mortgage.
And others use their credit cards for safety when shopping online. After all, if your credit card is used fraudulently, you aren't out any money. You can notify your credit card company of the fraud, and while they resolve the matter, you still have all your cash.
Look, we don’t take credit cards lightly. But we believe if you treat yours like you would any other tool — by reading the “safety manual” and using it wisely — it can be a tool for good.