So I get it, you want to take that really nice trip to Hawaii and you see an ad for a credit card that will help you do just that. The only problem is that you have now introduced the world of debt into your life with what some people call the cigarette of the financial world, a credit card. I know there are people out there who are going to disagree with this post and understandably so. I used to be one of those people who was obsessed with using my credit card to get the points and cash back rewards, you know the “perks” of having a credit card.

That is until I learned that virtually no one gets wealthy from using credit cards. According to a survey conducted on the Forbes 400 (richest 400 people in America as rated by Forbes magazine), 75% said becoming and staying debt free was the best way to build wealth. Hmmm, so using a credit card as a tool to build your credit so you can have a high credit score doesn’t really contribute to your wealth?

So what’s the point of a credit card then? Well, let’s see if we can go over the main “reasons” people get credit cards and maybe you’ll come to realize the way I did that credit cards are not my friends and not worth the trouble of having around.

Myth #1: I Need a Credit Card to Build Credit

Let’s start with the main reason people tell you to have a credit card, to build credit. Yes, building credit will help you become eligible for all kinds of loans and higher credit card balances if that is what you want, but not me! I cannot tell you how freeing it is to not use a credit card and worry about my credit score. I have given up the revolving door of the credit card life, because borrowing other people’s money to pay for something in the name of building credit does not help build wealth.

Financial independence is the key and learning to live within your means is going to help you get there. Credit cards only keep you trapped in a life of financial dependence and some of you will say, “Well, I pay my credit card debt off every month so I’m never late.” And I say according to studies by economic professionals, only 35% of you will actually pay your credit card debt every month so you won’t carry a balance. What happens to the other 65% who do carry a credit card balance every month…you get pounded by ridiculously high interest rates that you will get charged on top of your principal balance.

Also, believe it or not you actually spend more when you use a credit card rather than cold hard cash. According to a study done by Dun and Bradstreet, people spend 12-18% more when using credit cards instead of cash. Also, McDonald’s found out that their customers will spend $7 when using credit cards and $4.50 when using cash. I can believe this, because I was a college student and my credit card statements had a lot of charges with McDonald’s on them.

One more thing about building credit: you don’t need credit to get a mortgage. Did you hear that? You don’t need credit to get a house. This takes a little bit extra work, but in the long run it is worth it. Check out this article for more information: Can You Get a Mortgage With No Credit History?. And I plan to go over some information on buying a house soon so you can make the smartest and safest choice when you get ready to buy your house, but that’s for another day. So I want you to ask yourself what’s more important, building credit or building wealth?

Myth #2: Credit Cards Offers Points and Rewards

Another main reason I hear for credit cards is points and rewards. This was the one that got me. Remember I mentioned the revolving door of credit card debt? You charge your credit card, pay off the debt, get the points, charge the credit card, pay off the debt, get the points, charge, pay, points…a financial revolving door that becomes a part of the way you handle your money. Credit card companies have become so smart in their advertising and marketing that they even know how the color of a credit card will attract more people to signing up and using their product.

In my opinion, the points and rewards that are promised are not worth the headache and hurdles you have to take on. Not to mention the rewards are not enough to convince me I need to take on the risk of having a credit card. I’d rather focus my attention to budgeting and investing so that my financial future is going to be secure and awesome. And I also want to mention that points and rewards can come with having a debit card too in case you didn’t know. You just don’t have to be trapped with the revolving door of debt that credit cards come with.

Myth #3: Need a Credit Card Just In Case

The last reason I want to touch on is for people who use credit cards for emergency. This is where I see so many people get trapped. We think credit cards are good for the “just in case” moments in life. However, this is such a bad way of thinking that I want you to understand the real way to handle an emergency is by having an actual emergency fund in place. WHEN, not if, but when emergencies happen you should have your own fund that you can use to help support yourself with and not have to borrow the money.

So, stop whatever you’re doing right now and spend the next few weeks or months building an emergency fund anywhere from $1,000-$5,000 and leave it in an account that is not your primary checking account. If you are able to you can build a bigger emergency fund, but make sure you are also being wise and aggressively reducing other debts you may have. So for this emergency fund you can use a savings account or a money market account that your bank offers. The point is to get away from the mindset of having a credit card for emergencies, because the truth is you will end up using your credit card for more than emergencies and you will get trapped in that revolving door of credit card debt.

Verdict Says

My final note will be for the people who use credit cards when expensing charges when it comes to their jobs and getting reimbursed. I will only make an exception for that, because the company you work for is essentially paying you back. However, I will urge you to be careful on how much you expense on your credit card for work, because there can come a time where your company may be late in reimbursing you and you will have a late payment, or the company decides to go bankrupt after you just charged thousands of dollars on your credit card. Guess who is responsible for that debt…you are. So, still be careful!

For the vast majority of you I will still say that credit cards are not your friends and your financial goals should be to become independently wealthy. You can do this and the steps to get there are not very hard, but you have to be disciplined and focused. Check out the rest of Habesha Finance for awesome free tips and tools to help you get there and remember…take steps today to make leaps tomorrow.