4 ms·

Looking from the outside, it seems that people in the US are always using credit cards as opposed to debit cards, and I don't really see a good reason for that.

Looking from the outside, it seems that people in the US are always using credit cards as opposed to debit cards, and I don't really see a good reason for that. I have owned credit card in the past, and I could get one easily now, but I don't see any reason to: I have money in the bank, I want to spend it, and I don't need to lend anything. Why and how does _credit_ becomes the first and default way of payment?

toomuchtodo 2y ago
Because wages are insufficient. Credit fills the gap to survive. Half of bankruptcies in the US are from medical debt, for example. In 2023, approximately 36.8 million Americans, or 11.1%, lived below the poverty line. ~50% of Americans carry a balance, and the average U.S. household with credit card debt has a balance of around $6,065. Credit cards are expensive short term financing. https://www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states/ https://www.healthsystemtracker.org/brief/the-burden-of-medi... https://www.stlouisfed.org/on-the-economy/2024/may/which-us-households-have-credit-card-debt https://www.stlouisfed.org/on-the-economy/2024/may/which-us-...
- surajrmal 2y ago
  Many folks carry zero credit month to month and still use a credit card. You're giving away free money by not using it.
  - toomuchtodo 2y ago
    You're assuming these consumers of credit card products can pay off their cards (transactors) when the data shows, broadly, that the consumer is stressed financially. Consumers are relying on credit cards because they cannot afford not to (revolvers). US Consumer Debt Delinquency Hits Highest in Almost Five Years - https://www.bloomberg.com/news/articles/2025-02-13/us-consumer-debt-delinquency-hits-highest-in-almost-five-years https://www.bloomberg.com/news/articles/2025-02-13/us-consum... | https://archive.today/ivRqd https://archive.today/ivRqd - February 13, 2025 Record Share of Americans Pay Only Minimum on Credit Card Bills - https://news.bloomberglaw.com/banking-law/record-share-of-americans-pay-only-minimum-on-credit-card-bills https://news.bloomberglaw.com/banking-law/record-share-of-am... - Jan. 22, 2025 Philadelphia Fed: Card Balances and Delinquencies Continue Upward Trajectory; Mortgage Originations Stagnate - https://www.philadelphiafed.org/surveys-and-data/2024-q3-large-bank https://www.philadelphiafed.org/surveys-and-data/2024-q3-lar... - January 22, 2025 St Louis Fed FRED: Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks (CCLACBW027SBOG) - https://fred.stlouisfed.org/series/CCLACBW027SBOG https://fred.stlouisfed.org/series/CCLACBW027SBOG (credit card balances total ~$1T outstanding as of this comment)
    - s1artibartfast 2y ago
      You are still looking at a minority to define a universal trend. Some consumers may be stressed. That doesn't explain why credit cards use has dominated across all income ranges for decades. It seems like you are trying to shoehorn a pet issue into an unrelated question. Edit: you still seem to be missing the question. It isn't why credit debt is so high. The question is why so many people use credit cards. What you are saying may be true, but it is answering it an entirely different question. >People would use debit cards if they had the funds. This is the part that simply isn't true. The rich use credit cards too. Less than half of credit card owners carry a balance from month to month.
      - deleted 2y ago
        [deleted]
      - toomuchtodo 2y ago
        Ah yes, "my pet issue." I suppose I am not the chief economist at Moody's. It must the purchase protection and the rewards, not the unsecured credit. https://time.com/6957322/why-credit-card-debt-is-high/ https://time.com/6957322/why-credit-card-debt-is-high/ > The higher cost of everything from housing to high-tops to haircuts are a major culprit. Although inflation has moderated since it peaked in June 2022, Americans—particularly lower-income families—are relying more on credit cards to cope with the sticker shock. > “They used credit card debt to supplement their incomes to maintain their purchasing power,” says Mark Zandi, chief economist at Moody’s Analytics. > A few years ago, low interest rates plus a host of pandemic-era programs—stimulus payments, enhanced food stamp benefits, pauses on student loan payments and eviction proceedings—made this new math work for families’ budgets. But those financial supports have been discontinued, and for borrowers who were barely treading water financially, these programs couldn’t have been eliminated at a worse time. Credit card rates are high because they can be, if you need financing you have nowhere else to go except perhaps a payday lender or other hard money source. This is why there is recent talk of capping interest rates at 10%. People would use debit cards if they had the funds, they don't, which is also why overdraft fees were a source of billions of dollars in fees for commercial banks. S.381 - 10 Percent Credit Card Interest Rate Cap Act - https://www.congress.gov/bill/119th-congress/senate-bill/381 https://www.congress.gov/bill/119th-congress/senate-bill/381 Big banks have drastically cut overdraft fees, but customers still paid $2.2 billion last year - https://www.cnbc.com/2024/02/09/jpmorgan-chase-wells-fargo-cut-overdraft-revenue-to-2-billion-in-2023.html https://www.cnbc.com/2024/02/09/jpmorgan-chase-wells-fargo-c...
Enginerrrd 2y ago
Because credit cards offer better protections from fraud making the consumer not liable. Debit transactions don't have that and they are also linked straight to your account so theres also additional risk where if someone steals the money using your debit information it's just gone.
- 486sx33 2y ago
  Exactly.
- tossandthrow 2y ago
  In Europe they offer the same amount of protection.
  - devilbunny 2y ago
    Most cards in the US have a Visa or MasterCard logo, and transactions made that way have essentially the same legal protections as credit card transactions, but in the meantime, your money is not in your bank account. So other transactions may fail. With credit cards, it's the bank's money that's missing, not yours.
  - deleted 2y ago
    [deleted]
  - zhivota 2y ago
    Even with the same nominal protection, with credit I don't lose anything. With debit the money is missing from my account until the case is resolved. I know I prefer to only put the bank's money at risk, not my own.
    - spwa4 2y ago
      Wouldn't a credit card charge YOU interest on the disputed amount until the case is resolved?
      - BugsJustFindMe 2y ago
deleted 2y ago
[deleted]
thfuran 2y ago
They offer more protections for the purchaser than a debit card with no direct additional cost as long as the bill is paid in full. They also often provide additional incentives like some percentage cash back.
- 486sx33 2y ago
  And 30 days no payment no interest.
goodoldneon 2y ago
Because I get rewards when I use it. I always pay at the end of the month so I never pay interest
- hx8 2y ago
  Exactly, I have 3 cards and choose the one that offers the highest rewards for each transaction. Then pay it off at the end of the month.
jwiz 2y ago
Credit cards have better consumer protection than debit cards. You are on the hook for like $50 max of fraudulent credit card, and like $500 of fraudulent debit. If you don't catch debit in time, you might be liable for all of it.
- lxgr 2y ago
  It's $0 for both credit and debit, under Visa and Mastercard "zero liability" rules. Even under Regulation E, it would only be $50 as long as the issuer is notified within two days of losing your card, and $0 for other types of fraud (e.g. unauthorized use of your card number online) if reported within 60 days of receiving the corresponding monthly statement.
- bombcar 2y ago
  https://usa.visa.com/pay-with-visa/visa-chip-technology-consumers/zero-liability-policy.html https://usa.visa.com/pay-with-visa/visa-chip-technology-cons... Process your debit as credit and bam.
skadamou 2y ago
If you are able to pay off your credit card balance each month, you can earn rewards points on every purchase which is money back in your pocket. Even if it seems like a tiny amount, in the long run, you are leaving money on the table using a debit card as opposed to a credit card for most of your purchases. The big caveat being you MUST pay the balance off each month to avoid paying interest otherwise you are losing money by using a credit card.
- ivm 2y ago
  At least in Chile, it’s common to have 3 months of interest-free payments offered by the banks, and some stores offer up to 24 months for cards issued by certain banks. It really helps with one-off costly purchases, like a new device or some stuff for home/garden. I never miss card payments and keep my finances organized, avoiding purchases I can’t pay off monthly.
forestgreen76 2y ago
Because it builds credit, and most credit cards these days have points/cash back programs, the caveat being you have to be very diligent about budgeting and ensure you pay the balance off in full every month. The problem is, most people don't do that.
- bluGill 2y ago
  40% do pay off every month. Not a majority but still a large number. We don't have numbers for those who normally pay them off but once in a while miss - that might be significant.
ponector 2y ago
US has both: insane credit card rates and bonus rewards (miles, cashback, etc). In EU rewards are shit, and the only reason to keep credit card is to be able to rent a car during summer vacation.
- sys_64738 2y ago
  Interesting. I never knew there were not as many deals. Some of the deals in the USA are crazy. 2% cashback all the time(!)
numpad0 2y ago
Historically it's explained as rapid inflation. IMO also due to being pre-Internet tech. Credit card "payments" can be completed offline and batch processed. In this day and age? Inertia?
floatrock 2y ago
> I have money in the bank Overdraft fees hit harder than interest
mjamesaustin 2y ago
The real answer is that US banking laws don't protect consumers the same way they do in Europe. So Americans are forced to use credit cards and enrich the companies offering that service, because using a debit card carries risks.
lxgr 2y ago
At the individual level, leaving 2% or more of cashback and an interest-free loan of at least a month on the table is just a bad economic decision. At the aggregate level, it of course costs everyone dearly, since the cashback is ultimately just paid for by consumers anyway – minus generous issuer profits.
crazygringo 2y ago
On top of protections, rewards, etc., you're gaining the time value of money. You shouldn't be keeping your savings in the bank, you should be keeping them in investments. When I charge something to my card, it's an average of 45 days until it gets debited from my bank account. That's 45 days that money can be in investments and profitable. It doesn't matter much over just one or two months (and will be swamped by the direction of the market anyways), but over a lifetime it adds up. Don't ever pay now when you can pay later, if you can invest your money during that gap.
- ryandrake 2y ago
  Yep, even if the credit card didn't offer any rewards or protection, I would still use them because I'm billed a nonzero number of days after the charge happens. And that's an interest free loan, where I can instead earn interest. If your credit card balance is $5000, and you only have to pay it an average of 30 days after the purchases are made, well... The 30 day T-bill rate is currently 4.38%, so putting that $5000 into the safest, most liquid investment available for 30 days will yield $18.25, which is much better than cash or a debit card where you are immediately charged.
dexwiz 2y ago
Couple of reasons - Point schemes. Every card has some sort of points system that encourages use. The best programs are often tied to specific products like airlines. Sometimes there are multipliers on specific categories of use like gas or travel. More expensive cards have better points programs. - Protection. You pay with the bank's money, not yours. This means you have an extra buffer to protect against fraud, and the bank is more incentivized to resolve issues. On the flip side, banks can put pressure on merchants by raising/lowering their transaction rates if they are consistently bad actors. - Card holder benefits. Often cards have extra things like car insurance for car rentals built into the card. They also give you access to a cash line of credit in emergencies. - Builds credit. If you don't have other major debts like a mortgage or car loan, your credit score can be low, because the banks rate unknown borrowers as risky. Consistent credit card usage alone can give you a medium-high rating, so when you do need to borrow for a home, you can get a better rate. This is a bit of a racket overall, but its better than a random banker judging you based on their personal bias. If you pay off your card in full every month, the only cost is the yearly fee, which varies by card, my current one is a mid range card for $50/year. Usually you need to spend a few hundred to thousand a year for the benefits to outweigh the cost. That said, this whole system preys upon those who don't pay every month/don't their card enough to benefit from it. I was taught credit cards were dangerous, and stayed away from them for years. I'm glad I never racked up debt when I was younger. But as a responsible adult, they are a boon.
- 2muchcoffeeman 2y ago
  You have to be responsible though. If you can’t deal with your money that way, don’t get one. Even if you are responsible, don’t get the most credit you can. I have enough for monthly expenses and a bit extra for emergencies.
  - bittercynic 2y ago
    Why not get as much as you can? The extra headroom might be handy for some unforseen expense, and in the mean time it makes your utilization ratio better.
rybosworld 2y ago
This blog has a great post on how credit card systems work, and I think it goes a long way to explaining how CC's became so popular in the U.S. in particular: https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/ https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car... The highlights in my own words: - Credit cards are a powerful tool that many people do not use correctly. They enable 0% interest loans so long as you pay your balance on time. It's only when you are late on a payment that you pay any interest - The vast majority of credit card spending is done by people in high income brackets - Credit card issuers fight to attract those high income bracket spenders. That's because credit card issuers make money on every purchase that's made via interchange fees (effectively a toll paid by merchants). They do this via cashback reward programs. - It's these interchange fees, not interest penalties, that issuers make most of their money - The economics of all of this work better in the U.S., because it has more high income spenders compared to other countries And finally, something that's less well known: the folks at the lower end of the income brackets subsidize all of this. Credit cards, and by extension, their rewards programs, only work when you have enough high income spenders that enable toll collection (interchange fees) from merchants. Merchants respond by raising their average price (subconsciously or otherwise) to compensate. Folks on the high end of the income bracket are able qualify for the lucrative rewards programs. But folks on the lower end cannot. In effect, the wealthy pay somewhere between 1-2% less on every transaction.
- lxgr 2y ago
  > Credit cards are a powerful tool that many people do not use correctly. If everybody were "using them correctly", issuers would be bankrupt. The fact that they're not should tell you that there's at least one winner other than the never-balance-carrying cardholders. > Credit card issuers fight to attract those high income bracket spenders. Correct, and everybody pays for this (very expensive) fight, one way or another. The fact that some people come out ahead does not make them a good deal in the median case. > And finally, something that's less well known: the folks at the lower end of the income brackets subsidize all of this. I agree, but as an aside, you might be surprised to find that the author of the article you quote would disagree with you there: https://x.com/patio11/status/1902555603534295115 https://x.com/patio11/status/1902555603534295115
diamondlovesyou 2y ago
I don't use credit cards for the credit; in fact mine are completely paid for every statement. They are used for the customer protections and other provided "free" benefits. If some scummy or outright scam-y thing is charged to my Amex, I know I will have Amex on my side. If my card is stolen, Amex will refund any fraudulent charges and overnight me a new card; I probably won't get my debit card overnighted, though they will probably refund the fraud. The other thing is credit card points, which are essentially a benefit paid for by credit card processing fees charged to businesses. Many cards also offer access to "private" airport lounges. And other benefits I'm forgetting off the top of my head. Additionally, having high credit limits, low usage, and older accounts improves credit scores for loans/etc. No interest is charged if there is no balance carried statement-to-statement, so why bother with silly debit pins and such. That's how it becomes the default way of payment; it's not really "credit".
jjav 2y ago
At least in the US with the regulations here, there is no good reason to ever use a debit card. Credit cards are superior in every way. Paying by credit card gets you: A 0% loan for 4-6 weeks. Not huge but it's free money. Better fraud protection (similar, but better; look it up) A firewall between fraud and your bank account (fraudulent charges never hit your bank account balance, unlike debit cards where the money is gone and you get refunded later) Cash back or points or other benefits. Not huge but it's free money.

toomuchtodo 2y ago

Because wages are insufficient. Credit fills the gap to survive. Half of bankruptcies in the US are from medical debt, for example. In 2023, approximately 36.8 million Americans, or 11.1%, lived below the poverty line. ~50% of Americans carry a balance, and the average U.S. household with credit card debt has a balance of around $6,065. Credit cards are expensive short term financing. https://www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states/ https://www.healthsystemtracker.org/brief/the-burden-of-medi... https://www.stlouisfed.org/on-the-economy/2024/may/which-us-households-have-credit-card-debt https://www.stlouisfed.org/on-the-economy/2024/may/which-us-...

surajrmal 2y ago
Many folks carry zero credit month to month and still use a credit card. You're giving away free money by not using it.
- toomuchtodo 2y ago
  You're assuming these consumers of credit card products can pay off their cards (transactors) when the data shows, broadly, that the consumer is stressed financially. Consumers are relying on credit cards because they cannot afford not to (revolvers). US Consumer Debt Delinquency Hits Highest in Almost Five Years - https://www.bloomberg.com/news/articles/2025-02-13/us-consumer-debt-delinquency-hits-highest-in-almost-five-years https://www.bloomberg.com/news/articles/2025-02-13/us-consum... | https://archive.today/ivRqd https://archive.today/ivRqd - February 13, 2025 Record Share of Americans Pay Only Minimum on Credit Card Bills - https://news.bloomberglaw.com/banking-law/record-share-of-americans-pay-only-minimum-on-credit-card-bills https://news.bloomberglaw.com/banking-law/record-share-of-am... - Jan. 22, 2025 Philadelphia Fed: Card Balances and Delinquencies Continue Upward Trajectory; Mortgage Originations Stagnate - https://www.philadelphiafed.org/surveys-and-data/2024-q3-large-bank https://www.philadelphiafed.org/surveys-and-data/2024-q3-lar... - January 22, 2025 St Louis Fed FRED: Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks (CCLACBW027SBOG) - https://fred.stlouisfed.org/series/CCLACBW027SBOG https://fred.stlouisfed.org/series/CCLACBW027SBOG (credit card balances total ~$1T outstanding as of this comment)
  - s1artibartfast 2y ago
    You are still looking at a minority to define a universal trend. Some consumers may be stressed. That doesn't explain why credit cards use has dominated across all income ranges for decades. It seems like you are trying to shoehorn a pet issue into an unrelated question. Edit: you still seem to be missing the question. It isn't why credit debt is so high. The question is why so many people use credit cards. What you are saying may be true, but it is answering it an entirely different question. >People would use debit cards if they had the funds. This is the part that simply isn't true. The rich use credit cards too. Less than half of credit card owners carry a balance from month to month.
    - deleted 2y ago
      [deleted]
    - toomuchtodo 2y ago
      Ah yes, "my pet issue." I suppose I am not the chief economist at Moody's. It must the purchase protection and the rewards, not the unsecured credit. https://time.com/6957322/why-credit-card-debt-is-high/ https://time.com/6957322/why-credit-card-debt-is-high/ > The higher cost of everything from housing to high-tops to haircuts are a major culprit. Although inflation has moderated since it peaked in June 2022, Americans—particularly lower-income families—are relying more on credit cards to cope with the sticker shock. > “They used credit card debt to supplement their incomes to maintain their purchasing power,” says Mark Zandi, chief economist at Moody’s Analytics. > A few years ago, low interest rates plus a host of pandemic-era programs—stimulus payments, enhanced food stamp benefits, pauses on student loan payments and eviction proceedings—made this new math work for families’ budgets. But those financial supports have been discontinued, and for borrowers who were barely treading water financially, these programs couldn’t have been eliminated at a worse time. Credit card rates are high because they can be, if you need financing you have nowhere else to go except perhaps a payday lender or other hard money source. This is why there is recent talk of capping interest rates at 10%. People would use debit cards if they had the funds, they don't, which is also why overdraft fees were a source of billions of dollars in fees for commercial banks. S.381 - 10 Percent Credit Card Interest Rate Cap Act - https://www.congress.gov/bill/119th-congress/senate-bill/381 https://www.congress.gov/bill/119th-congress/senate-bill/381 Big banks have drastically cut overdraft fees, but customers still paid $2.2 billion last year - https://www.cnbc.com/2024/02/09/jpmorgan-chase-wells-fargo-cut-overdraft-revenue-to-2-billion-in-2023.html https://www.cnbc.com/2024/02/09/jpmorgan-chase-wells-fargo-c...

Enginerrrd 2y ago

Because credit cards offer better protections from fraud making the consumer not liable. Debit transactions don't have that and they are also linked straight to your account so theres also additional risk where if someone steals the money using your debit information it's just gone.

486sx33 2y ago
Exactly.
tossandthrow 2y ago
In Europe they offer the same amount of protection.
- devilbunny 2y ago
  Most cards in the US have a Visa or MasterCard logo, and transactions made that way have essentially the same legal protections as credit card transactions, but in the meantime, your money is not in your bank account. So other transactions may fail. With credit cards, it's the bank's money that's missing, not yours.
- deleted 2y ago
  [deleted]
- zhivota 2y ago
  Even with the same nominal protection, with credit I don't lose anything. With debit the money is missing from my account until the case is resolved. I know I prefer to only put the bank's money at risk, not my own.
  - spwa4 2y ago
    Wouldn't a credit card charge YOU interest on the disputed amount until the case is resolved?
    - BugsJustFindMe 2y ago

deleted 2y ago

[deleted]

thfuran 2y ago

They offer more protections for the purchaser than a debit card with no direct additional cost as long as the bill is paid in full. They also often provide additional incentives like some percentage cash back.

486sx33 2y ago
And 30 days no payment no interest.

goodoldneon 2y ago

Because I get rewards when I use it. I always pay at the end of the month so I never pay interest

hx8 2y ago
Exactly, I have 3 cards and choose the one that offers the highest rewards for each transaction. Then pay it off at the end of the month.

jwiz 2y ago

Credit cards have better consumer protection than debit cards. You are on the hook for like $50 max of fraudulent credit card, and like $500 of fraudulent debit. If you don't catch debit in time, you might be liable for all of it.

lxgr 2y ago
It's $0 for both credit and debit, under Visa and Mastercard "zero liability" rules. Even under Regulation E, it would only be $50 as long as the issuer is notified within two days of losing your card, and $0 for other types of fraud (e.g. unauthorized use of your card number online) if reported within 60 days of receiving the corresponding monthly statement.
bombcar 2y ago
https://usa.visa.com/pay-with-visa/visa-chip-technology-consumers/zero-liability-policy.html https://usa.visa.com/pay-with-visa/visa-chip-technology-cons... Process your debit as credit and bam.

skadamou 2y ago

If you are able to pay off your credit card balance each month, you can earn rewards points on every purchase which is money back in your pocket. Even if it seems like a tiny amount, in the long run, you are leaving money on the table using a debit card as opposed to a credit card for most of your purchases. The big caveat being you MUST pay the balance off each month to avoid paying interest otherwise you are losing money by using a credit card.

ivm 2y ago
At least in Chile, it’s common to have 3 months of interest-free payments offered by the banks, and some stores offer up to 24 months for cards issued by certain banks. It really helps with one-off costly purchases, like a new device or some stuff for home/garden. I never miss card payments and keep my finances organized, avoiding purchases I can’t pay off monthly.

forestgreen76 2y ago

Because it builds credit, and most credit cards these days have points/cash back programs, the caveat being you have to be very diligent about budgeting and ensure you pay the balance off in full every month. The problem is, most people don't do that.

bluGill 2y ago
40% do pay off every month. Not a majority but still a large number. We don't have numbers for those who normally pay them off but once in a while miss - that might be significant.

ponector 2y ago

US has both: insane credit card rates and bonus rewards (miles, cashback, etc). In EU rewards are shit, and the only reason to keep credit card is to be able to rent a car during summer vacation.

sys_64738 2y ago
Interesting. I never knew there were not as many deals. Some of the deals in the USA are crazy. 2% cashback all the time(!)

numpad0 2y ago

Historically it's explained as rapid inflation. IMO also due to being pre-Internet tech. Credit card "payments" can be completed offline and batch processed. In this day and age? Inertia?

floatrock 2y ago

> I have money in the bank Overdraft fees hit harder than interest

mjamesaustin 2y ago

The real answer is that US banking laws don't protect consumers the same way they do in Europe. So Americans are forced to use credit cards and enrich the companies offering that service, because using a debit card carries risks.

lxgr 2y ago

At the individual level, leaving 2% or more of cashback and an interest-free loan of at least a month on the table is just a bad economic decision. At the aggregate level, it of course costs everyone dearly, since the cashback is ultimately just paid for by consumers anyway – minus generous issuer profits.

crazygringo 2y ago

On top of protections, rewards, etc., you're gaining the time value of money. You shouldn't be keeping your savings in the bank, you should be keeping them in investments. When I charge something to my card, it's an average of 45 days until it gets debited from my bank account. That's 45 days that money can be in investments and profitable. It doesn't matter much over just one or two months (and will be swamped by the direction of the market anyways), but over a lifetime it adds up. Don't ever pay now when you can pay later, if you can invest your money during that gap.

ryandrake 2y ago
Yep, even if the credit card didn't offer any rewards or protection, I would still use them because I'm billed a nonzero number of days after the charge happens. And that's an interest free loan, where I can instead earn interest. If your credit card balance is $5000, and you only have to pay it an average of 30 days after the purchases are made, well... The 30 day T-bill rate is currently 4.38%, so putting that $5000 into the safest, most liquid investment available for 30 days will yield $18.25, which is much better than cash or a debit card where you are immediately charged.

dexwiz 2y ago

Couple of reasons - Point schemes. Every card has some sort of points system that encourages use. The best programs are often tied to specific products like airlines. Sometimes there are multipliers on specific categories of use like gas or travel. More expensive cards have better points programs. - Protection. You pay with the bank's money, not yours. This means you have an extra buffer to protect against fraud, and the bank is more incentivized to resolve issues. On the flip side, banks can put pressure on merchants by raising/lowering their transaction rates if they are consistently bad actors. - Card holder benefits. Often cards have extra things like car insurance for car rentals built into the card. They also give you access to a cash line of credit in emergencies. - Builds credit. If you don't have other major debts like a mortgage or car loan, your credit score can be low, because the banks rate unknown borrowers as risky. Consistent credit card usage alone can give you a medium-high rating, so when you do need to borrow for a home, you can get a better rate. This is a bit of a racket overall, but its better than a random banker judging you based on their personal bias. If you pay off your card in full every month, the only cost is the yearly fee, which varies by card, my current one is a mid range card for $50/year. Usually you need to spend a few hundred to thousand a year for the benefits to outweigh the cost. That said, this whole system preys upon those who don't pay every month/don't their card enough to benefit from it. I was taught credit cards were dangerous, and stayed away from them for years. I'm glad I never racked up debt when I was younger. But as a responsible adult, they are a boon.

2muchcoffeeman 2y ago
You have to be responsible though. If you can’t deal with your money that way, don’t get one. Even if you are responsible, don’t get the most credit you can. I have enough for monthly expenses and a bit extra for emergencies.
- bittercynic 2y ago
  Why not get as much as you can? The extra headroom might be handy for some unforseen expense, and in the mean time it makes your utilization ratio better.

rybosworld 2y ago

This blog has a great post on how credit card systems work, and I think it goes a long way to explaining how CC's became so popular in the U.S. in particular: https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/ https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car... The highlights in my own words: - Credit cards are a powerful tool that many people do not use correctly. They enable 0% interest loans so long as you pay your balance on time. It's only when you are late on a payment that you pay any interest - The vast majority of credit card spending is done by people in high income brackets - Credit card issuers fight to attract those high income bracket spenders. That's because credit card issuers make money on every purchase that's made via interchange fees (effectively a toll paid by merchants). They do this via cashback reward programs. - It's these interchange fees, not interest penalties, that issuers make most of their money - The economics of all of this work better in the U.S., because it has more high income spenders compared to other countries And finally, something that's less well known: the folks at the lower end of the income brackets subsidize all of this. Credit cards, and by extension, their rewards programs, only work when you have enough high income spenders that enable toll collection (interchange fees) from merchants. Merchants respond by raising their average price (subconsciously or otherwise) to compensate. Folks on the high end of the income bracket are able qualify for the lucrative rewards programs. But folks on the lower end cannot. In effect, the wealthy pay somewhere between 1-2% less on every transaction.

lxgr 2y ago
> Credit cards are a powerful tool that many people do not use correctly. If everybody were "using them correctly", issuers would be bankrupt. The fact that they're not should tell you that there's at least one winner other than the never-balance-carrying cardholders. > Credit card issuers fight to attract those high income bracket spenders. Correct, and everybody pays for this (very expensive) fight, one way or another. The fact that some people come out ahead does not make them a good deal in the median case. > And finally, something that's less well known: the folks at the lower end of the income brackets subsidize all of this. I agree, but as an aside, you might be surprised to find that the author of the article you quote would disagree with you there: https://x.com/patio11/status/1902555603534295115 https://x.com/patio11/status/1902555603534295115

diamondlovesyou 2y ago

I don't use credit cards for the credit; in fact mine are completely paid for every statement. They are used for the customer protections and other provided "free" benefits. If some scummy or outright scam-y thing is charged to my Amex, I know I will have Amex on my side. If my card is stolen, Amex will refund any fraudulent charges and overnight me a new card; I probably won't get my debit card overnighted, though they will probably refund the fraud. The other thing is credit card points, which are essentially a benefit paid for by credit card processing fees charged to businesses. Many cards also offer access to "private" airport lounges. And other benefits I'm forgetting off the top of my head. Additionally, having high credit limits, low usage, and older accounts improves credit scores for loans/etc. No interest is charged if there is no balance carried statement-to-statement, so why bother with silly debit pins and such. That's how it becomes the default way of payment; it's not really "credit".

jjav 2y ago

At least in the US with the regulations here, there is no good reason to ever use a debit card. Credit cards are superior in every way. Paying by credit card gets you: A 0% loan for 4-6 weeks. Not huge but it's free money. Better fraud protection (similar, but better; look it up) A firewall between fraud and your bank account (fraudulent charges never hit your bank account balance, unlike debit cards where the money is gone and you get refunded later) Cash back or points or other benefits. Not huge but it's free money.