Why Credit Cards are Evil - Truth from an Ex-banker

Don’t believe financial authors who tell you Credit Cards themselves are not inherently “evil.” They will say they are financial tools that can be used responsibly or irresponsibly, depending on how individuals manage their finances. But take it from me, a former Credit Card Marketer for global banks for over 20 years, for the majority of people, especially young people, they are evil.

proof points That credit cards are Bad for You, and in Some Cases Downright Evil, and should be avoided

High Interest Rates: I spent the first 20 years of my career helping global banks sell credit cards, first to adults and then to college student. I started my career right out of college, at Chase Manhattan, now JPMC. I lived in a city full of credit card banks. Why? Because the state of Delaware had no usury laws, meaning banks incorporated there had no legal cap on the level of interest they could charge their customers. Apparently no moral cap either as current rates on JPMC cards range from 20-30% APR! (evilproofpoint#1)
Affiliate Marketing: Authors telling you that credit This is merely BS because these same sites partner with credit card companies who pay them to market their products. Check the fine print on sites like NerdWallet. (evilproofpoint#2)
Financial Despair: I always loved the strategy, marketing and operations components of my role managing credit card businesses. But I never loved the product. I started my career in customer service on the phones. Many of the customers would call asking for a credit line increase because they were in financial trouble (yikes, kind of the exact opposite of what you need!), or because they were late making their payments and they needed a repayment plan or they were declined for a new card due to poor credit history, or they were getting divorced and didn’t want to be responsible for their ex’s bill (unfortunately, that’s not how it works and spouses are responsible for all joint credit cards so be wary of getting a joint account). (evilproofpoint#3)
Marketing to drive up interest revenue: As part of my job, we were expected to create marketing programs to set up new accounts, increase the spend on those accounts and retain those accounts when they tried to close. I don’t want to go into all the details, but in summary, there were some very anti-consumer friendly programs involving increasing credit lines in hopes of increasing balances, promoting min payments to delay balance paydown and increase interest earned, to making customers call customer service to make it harder to decrease credit lines or close accounts. (evilproofpoint#4)
Hidden fees: Credit cards may have various fees, including annual fees, late payment fees, over-limit fees, and foreign transaction fees, which can add to the cost of using them.
Temptation to overspend: Credit cards can encourage impulse spending and lead people to purchase items they can’t afford, which can contribute to financial difficulties.
Negative impact on credit score: If not managed responsibly, credit card debt and missed payments will harm your credit score, making it more challenging to secure loans or other forms of credit in the future.
Predatory lending practices: Some credit card companies have been criticized for engaging in predatory lending practices, targeting vulnerable individuals, and imposing high fees and interest rates. I once managed the college card division of a global bank. They asked me to develop a product plan to market Platinum Credit cards to students who had income and therefore very limited ability to repay the balance. These kids had just turned 18 and had no need to get into debt. The card company asked for a marketing campaign of pure BS on how a card could “help” students. The truth is, data supports the idea that the earlier you get a card, the more you’ll spend and the longer you’ll stick with a bank. I refused to create a Platinum Credit card for College Students and left that bank. (evilproofpoint#5)
Debt Accumulation: What you buy today, will take you decades (or a lifetime) to pay off. In most cases you’ll be paying for what you bought long after you’ve thrown it out! (evilproof#6)

Let’s take a simple calculation based on the current average credit card balance in the US.

The average cardholder had $6,568 in credit card debt in Q2 2023, up 10% from $5,963 in Q2 2022 according to the latest study from MoneyGeek. If you owe a lot (usually, over $1,000): Your minimum will be calculated based on your balance. Typically about 2% of the balance.

At first glance you may think, “well if I am paying $130 a month on a $6,500 balance I can pay it off in 4 years”.

WRONG! You need to consider interest, which is on average 21% on credit cards right now. That’s right, 21%!! That’s 12.5% ABOVE the current prime rate.

The prime rate is an interest rate that most commercial banks and other lenders use to set the APR on credit cards, as well as on other types of loans, including mortgages, personal loans and home equity loans. It’s based on the banks costs as well as their desired return.

Credit card companies make the bulk of their money on interest charged to their customers, followed by late and other fees charged, and lastly by transaction fees paid by merchants that accept cards. But the bulk of their revenue is made from YOU.

So how much is that $6,500 actually costing you in money and time?

A whopping $15,582 and 10 years!

You’ll pay back your initial $6,500, but you’ll also pay over $9,000 in interest and it will take you a decade to do it.

You’ll end up paying 40% more in interest than you did for the initial $6,500 of stuff.

Use this Bankrate calculator to calculate how much you’ll pay over time and how long it will take you to pay down your current balances using the min payment that banks WANT you to use. The results will likely shock you.

When I was managing card businesses, we did not have to disclose this information about time to pay down when using min payments. But now banks are required to do so on the statement thanks to consumer protection regulation. But I know most consumers don’t give the attention to their statement they should.

However, some people view credit cards as potentially problematic for several reasons:

How to Ignore the BS about credit cards being good for you

Here is a list of BS busters to keep in min when you’re reading about how great credit cards are for you.

BS “Benefits”	Truth from an Ex-Banker
Easy, convenient purchases	Debit cards are just as convenient.
The ability to build credit history required to rent, set up utilities and purchase a home	You don’t need a credit card to do this, there are other methods that are less prone to getting you into debt. Try a credit builder loan. Your car loan will also show on your credit report. You can apply for a secured credit card.
Valuable perks and rewards	Most credit card points are worth about 1 cent, with some valued at 1.5 cents depending on what you redeem for. So spending $50,000 may earn you $500 in rewards. How much interest did you pay on that $50,000? What were your annual fees for that card? These rewards are not FREE, they cost you in annual fees and interest. CC marketers are just trying to get you to spend more and have a higher balance and charge you interest. If points were good for consumers and bad for the banks, the banks wouldn’t offer them!
Protection for purchases and travel bookings	Nice to have feature but it’s rarely used and you can purchase travel insurance separately (for much less than you’re likely paying in interest on your card)
You need it to rent a car	Nope, they take debit and prepaid cards as well. They may restrict some categories such as high-end cars. They may also require a deposit or a credit check.
Quick reimbursement for fraudulent charges	Also true for a debit card. Federal law limits your liability for unauthorized debit card purchases to $50, provided you report the fraud within two business days of discovering it.

Consumers’ relationship with credit cards is complicated

According to a NerdWallet survey, nearly one in 10 Americans (9%) think credit cards are evil.

What that says to me is, not enough Americans know the truth about credit cards. If they did, that number would be a lot higher!

Remember when you’re tempted to use a Credit card:

Credit cards make it all too easy to overspend on things you don’t need
Buying on credit makes your purchases way more expensive, considering the interest you may pay on them
Getting into too much debt can not only hurt your credit score but also cause severe financial stress
If you’re young (18-25), avoid credit cards at all cost, as you’re more likely to overspend. You’ll spend the rest of your lives struggling with your finances, making renting and buying a home difficult, as well as planning a wedding and traveling on vacations.

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