Credit Cards: Bad? Continued..
by Jason SteeleMy post yesterday, Credit Cards: Bad, largely focused on the opinions of Mr. Brad Chaffee, who runs the blog Enemy of Debt. That post drew a quick reply from Brad himself:
Extremist maybe but that could be because normal is “in debt up to their eyeballs.” I would like to point out that I realize that there are some that do have discipline and more responsible spending habits but have you looked at the amount of credit card debt, as well as the fact that Americans until the recession were saving a -2% of there pay each year? That has only improved in the last 6 months, but if I am not mistaken it is still slightly negative.
7 out of 10 people live paycheck to paycheck and all these numbers prove is that most Americans DO NOT have the discipline you speak of. It is obvious that people are spending more than they make, which would suggest that what I am offering people is needed. They are already doing it your way and look at the numbers. As you stated, it might work for some but not others but maybe you should turn those numbers so that “most people” refers to those that need it. You happen to fall in the minority according to all the numbers.
People need to be educated to become more like you, not told that learning ways to become like you are extreme. I think that makes you more of an extremist than me. One stands to make a lot of money off of keeping people hooked on the plastic. Do you get paid for pushing credit? Just curious, not being rude. Thanks for linking to me and giving me a chance to share my thoughts on your blog. Your opinion is respected and it’s okay with me that we disagree. Have a great weekend!
My Response
First, welcome to the AskMrCreditCard blog. I am pleased that you read my post and chose to respond. I love a healthy debate between different viewpoints. I think we have more in common that I would have immagined. I agree that the average level of debt in this country is way too high, creating an unhealthy situation for the borrowers, the lenders, and the overal economic climate. I also agree that a negative savings rate is certainly a bad thing.
I do not dispute that most people are living paycheck to paycheck, and that is sad. Perhaps your advice applies to more people than not. It is unfortunate that responsible money managers are the minority in this country. I will admit that I happened to be raised to handle money well, and I happen to be surrounded by friends and family who, for the most part, handle money extremely well. My direct contact with those who are in cycles of debt is fairly limited, and I may underestimate their numbers.
I am working hard at this blog to try to educate people in responsible ways to handle money. Last year, I produced a three part “manifesto” on financial responsibility. You can read Part 1, Part II, and Part III here. I think you will agree that the philosophy that I write about strongly discourages almost all debt. The only debt that I find acceptable is tax deductible interest on appreciating assets. The only things that meet that criteria are education loans and a mortgage for you primary residence. All other debt is bad, including car loans.
Am I Just A Shill For the Industry?
This is not the first time I have been accused of being a tool for the industry. I have also been accused of being too hard on the credit card industry as well. Regular readers will know full well that I am frequently critical of credit card industry practices, and I strongly support the Credit Card Bill of Rights. Undoubtedly, this site is supported by advertising and referral fees from the credit card companies. On the other hand, I personally receive no compensation directly from the credit card industry, and MrCreditCard, who manages the site, has never asked me to censor my frequent criticism of various credit card industry practices.
Extremism?
I think we are both extremist in a way. I do try to practice and promote extremely sound financial strategies, and I am on the exteme end of people who optimize reward card benefits while eliminating all credit card debt. Brad takes a view on the opposite extreme, that, as a general rule, it is best not to have any credit cards at all.
What is most interesting is how much we have in common. With the possible exceptions of home mortgage and education loans, we both believe that debt is bad. We are both preaching financial responsibility. Like religous officials from different denominations, we are both seeking different paths to uphold the same beliefs.
Thanks for your thoughts.
May 9th, 2009 at 01:05
Very nice response! I think you are right in that we agree on financial responsibility which is good. I guess where I am coming from is that when people have a problem with something you usually do not ask them to continue doing what they have been doing. For instance you do not tell and alcoholic that is trying to quit to drink as long as they maintain self control. People with a problem have already proven to lack self control which is why it became a problem. Would you agree with that?
I think that people can be taught self control. With what I believe, addressing the behaviors that caused the problem is key. For the record, although I am completely against owing anyone a debt, just like Dave Ramsey, I think that a mortgage is not the end of the world. It usually appreciates, and because of the size of a mortgage, people just can’t wrap their heads around 100% cash down. I can and see great benefit in doing so. I appreciate the healthy debate that has taken place.
Thanks for your thoughtful response!
May 10th, 2009 at 04:32
Hi
I think that it’s interesting when you get two opposing points of view debated in a constructive manner (rather than the “shouting” that so often serves as debate on the web).
The real extremism of some financial advice (and I’m not including either of you in this) can have the result of turning people away. Perhaps sometime a little more pragmatism is required if financial advice sites are to be of genuine assistance to ordinary people rather than a tool to inflate the blog owners ego.
But then again I’ve suffered a financial crisis so what do I know
May 15th, 2009 at 14:36
It is clear and obvious that credit cards are not for everybody. But the credit card companies do not do enough to educate the public about their options and obligations. This is the equivalent of the housing bubble, people borrowing money they can’t pay back. How is this being tolerated?