When it comes to credit cards, even good answers have bad elements lying just beneath the surface.

[Michelle] Michelle on the Street

[Michelle] Hey guys. Miss Money Michelle. Did you know that the average American household has about $16,000 of credit card debt? And you wouldn’t believe all the crazy things people are spending their money on. So, we’ve decided to hit the streets to ask people what the best and worst things that they’ve charged on their credit cards.

[Michelle] What is your opinion on credit cards?

[Respondent 1] Well, um, I don’t like them anymore.

[Respondent 2] It’s a trap. Credit cards are a trap.

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[Respondent 3] For an absolute emergency maybe, maybe we could use it. But I really don’t like to use them very much.

[Respondent 4] It depends on what you’re using them for, of course.

[Respondent 5] They need to lower more of the interest rates on some of the cards. They’re way, way too high.

[Respondent 6] Credit cards are a good way to be able to spend money, but not go beyond your limit.

[Michelle] So, are you a believer of paying your credit card off in full or do you like to make monthly payments?

[Respondent 6] I like to make monthly payments.

[On-screen text] X – You’re wasting Money! Make more that than the minimum payment or pay off your balance in full each month.

[Michelle] And what is the best and worst thing that you’ve ever put on a credit card?

[Respondent 2] I bought a ticket to Hawaii last year. The worst thing? Probably money for a down payment for a car accident I got in.

[Michelle] Aw, I’m so sorry to hear that. But at least you used it for an emergency.

[Respondent 5] Well the worst thing I bought on a credit card is a car rental. The best thing is my laptop.

[Respondent 1] The best thing would be a Coach purse… for my mom. And the worst thing would be handcuffs that cost $100 from the adult store. They were bedazzled.

[Michelle] Oh my god. I can imagine they’re paid off, right?

[Respondent 1] Yes, they’re paid off and put away.

[Respondent 3] We try to use a credit card only in emergencies.

[Respondent 4] About $10,000 worth of shopping. That’s probably the worst if you don’t pay it.

[Michelle] That’s the worst. So, what’s the best?

[Respondent 4] The best is just having a great credit score overall.

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Weighing out the reasons why credit cards are bad to see if they hold

Credit cards are not inherently evil. Even credit card companies are not out to do harm to consumers. It’s not their goal to drive you into bankruptcy. That’s bad for them, too; it’s not exactly a good business model to destroy the lives of your customers.

Still, there are features built into credit cards that can make them risky to use. If you don’t take steps to manage the debt, you can quickly run into trouble. You can also run up huge balances and drive yourself into financial distress easier than you might think. And nobody will stop you. The credit card companies will only complain if you ever start to miss your payments.

So, here are the features that push people to conclude that credit cards are bad:

  1. Minimum payment structures are designed to keep you in debt as long as possible, because that increases revenue for the credit issuers.
  2. Interest rates are really high. In fact, they tend to be double or triple (or more) the rates you pay for traditional loans. Your mortgage is over $100,000 but the interest rate could be less than 5 percent. Meanwhile, if you run up a $100,000 balance on rewards credit cards, the rate can be above 20 percent.
  3. When you hit your credit limit, they often just give you more credit. There’s no immediate consequence or someone telling you to stop when you overspend. In fact, they usually reward you by giving you a higher limit so you can spend more.
  4. Credit card contracts are chock full of fine print. There are different rates for different types of transactions and there can be things like clauses to limit balance transfers. Even how monthly interest charges apply to your debt is not intuitive, and reading all that fine print is enough to make you cross-eyed.

Still, none of that makes credit cards bad — and they can actually be good when used correctly. They only get nasty if you’re abusing them.

Now let’s answer some of the statements posed by our respondents…

No. 1: Using credit for emergencies is really a sign of financial trouble

If you’ve been told all your life that credit cards should only be used for emergencies, that’s actually wrong. Credit cards shouldn’t be your financial safety net. That’s what you’re supposed to use savings for.

That means that if you turn to credit every time there’s an emergency, then there’s something wrong with your budget. You need to go back and balance your budget so you can set aside a little bit of money every month. That way, the next time your car breaks down, you don’t have to pull out the plastic.

No. 2: Spreading your debt out over time only increases your costs

Here’s an important secret: If you start and end every billing cycle with a zero balance, you avoid interest charges entirely. You can make as many charges as you want. As long as you started the billing cycle at zero and then pay your balance off in full, you use credit interest-free.

That’s why I asked that one respondent about monthly versus in-full. By spreading out repayment, she’s giving her creditors more opportunities to apply interest charges. So, while it seems like you just spread the cost out over time, what you really do is increase the cost overall.

No. 3: Don’t use credit cards for cash

The lifeguard first responder who used her credit card to take out cash for a down payment hit herself with double the interest charges on her car’s financing. She pays the interest charges on the remaining purchase price of the car minus the down payment – i.e. the loan. However, she will also pay some exorbitant interest charges for that cash advance on her credit card.

Credit cards have a built-in feature where you can use the card to withdraw cash at an ATM. However, the convenience comes at a high cost. Cash advances have special APR that’s usually much higher than the APR for regular purchases on the same card. You pay big to take out cash on a credit card. And if you take out enough for a car down payment, that’s a hefty amount to pay off. At the end of the day, she might have ended up paying more than she would have with a no-money-down auto loan offer.

No. 4: If you amass $10,000 in credit card debt, find better ways to pay it off

The guy at the end who said the worst thing he did was charge up $10,000 and the best thing was his credit score isn’t crazy. Charging up $10,000 and then paying it all off on time is a fantastic way to achieve a good credit score. If you keep up with the payments and never let any debt slip into collections, the chances are high that his score is excellent after that.

However, the total cost of paying off all that debt on a credit card would be mindboggling. On minimum payments, the interest charges would at least double the cost. So, if you’re going to charge that much, find a better way to pay it off. We can help you get started with this article: 5 Ways to Consolidate Credit Card Debt.

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Article last modified on August 8, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: Money on the Street Interviews: Are Credit Cards Bad or Good? - AMP.