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To my chagrin, I was watching a recorded episode of the Oprah show with Mrs. Franco the other night, which was dedicated to being frugal (I know what your thinking…why didn’t they ask Franco to be on the show…invite must have gotten lost in the mail). Other than coming up with some painfully obvious money saving tips (don’t buy new furniture and trade with a friend instead; camp in your backyard instead of going on vacation, etc…), they managed to villianize credit cards as if they had been forged in the fires of Hades and given to us by the Prince of Darkness himself. One very frugal couple was sent to help a not-so-frugal couple come up with money saving ideas (most of which were very useful), which climaxed with the ceremonious cutting of the credit cards. The not-so-frugal husband was even shown on camera saying something to the sort of “I really like this idea of getting rid of our credit cards and only using debit cards to pay as we go.”

First off, I want to make something loud and clear…don’t go into debt unless 1) you absolutely have to (laid off at work with insufficient savings, can’t afford school, etc.) or 2) it is for investment purposes with a good chance of generating a positive return in the future (this one is a slippery slope, so don’t abuse it). Basically, people should never go into debt to fund their consumption habits. Using debt for investment purposes like buying a home, starting a business, or even buying stock (if you can stomach the short-term volatility for potential long-term gains) can be a very wise investment. That being said, most people are not running up credit card debt to go buy extra shares of Apple and are instead just buying too many iPods (I think everyone gets my point). 

Secondly, let me be the first (well more like the last) one to tell everyone that credit cards can be dangerous. To quote a very old and over used adage, it’s like “playing with fire.” But who would want to live without fire (maybe the Geico cavemen, but I digress)? The key to responsibly using credit cards is to see them as an extension of your bank account. Never charge more on a credit card than you would if you were paying in cash. People get into trouble when they fail to realize that spending money on a credit card is just as if you had taken money out of your bank account and handed it over to the merchant. As long as credit cards are paid of in full, every month before the balance accrues any interest, they are a wonderfully convenient and frugal (adding value) way to spend money because of the many generous reward programs offered through a variety of different banks.

Lastly, this whole idea that debit cards are soooo much better than credit cards is a total farce. Other than the fact that banks love debit cards because they are linked to a checking account where cash is making 0% interest a year, they are far more risky than credit cards. If your wallet gets stolen and someone goes on a shopping spree with your credit cards, there is a good chance that you won’t have to pay a dime. With debit cards, this is a bit of a grey area. I know that many banks promise the same protection on debt cards, but I also know from little brother Franco’s personal experience that this process is long and arduous and doesn’t always result in full reimbursement of lost funds. Unless you are carrying around a debit card that only works with a PIN (a la an old school ATM card) and cannot be used as a credit card, you are playing with an even bigger fire than using credit cards.

Thanks for letting me rant and don’t forget to check out this handy tool for choosing the best cash back rewards credit card. By the way, one of the featured guests known as Coupon Mom, did pass on some good tips along the same lines as one of my very first posts.

Ciao,
Franco

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