An excellent post over at Blueprint for Financial Prosperity “10 Reasons Credit Debt and You Should be BFF”

I left comments on the site, but wanted to expand on the points I felt needed additional discussion,…

1. Credit cards give you Cash Back

Credit cards do give cash back, points back, travel bonuses, green stamps, and whatever else they can give out to get your business. The key to this is that they are a BUSINESS. They aren’t giving these things away for free. They have a plan to get more money FROM you, than they give TO you. To get all these wonderful things, you have to use the credit card, and if you don’t pay it off in full each month, don’t have a no-annual-fee card, or make a payment late sometime, you end up paying penalties and interest.

2. Credit cards protect you against fraud and 3. Credit cards are safer than cash!

I agree, with one addition. If I were going to carry around large sums of money, there’s always cashier’s checks or Travelers checks as well as using a credit card.

4. Credit cards are valuable in emergencies

I agree again, with an addition. Credit cards are good for emergencies in places THAT ACCEPT CREDIT CARDS. As many places that accept CC’s, there are still places that don’t. If you’re planning on all types of emergencies, carrying around a couple hundred dollars tucked away somewhere might buy you out of a situation that CC’s won’t. (Buying gas somewhere that doesn’t have/doesn’t take CC’s for example).

5. Credit cards provide protections, warranties, etc.

Overall I agree. Extra warranties don’t hurt. I have encountered a case recently where the car rental companies tried to sell my wife additional insurance to cover what wasn’t covered by the CC. I’m not exactly sure what that is, so I’m skeptical about whether it was real or whether it was hyperbole, but it might be worth looking into if one has a little extra time to look at your CC’s fine print.

6. Try to buy a house without a mortgage

Yep, couldn’t agree more. For those that save up for a house, then buy it, you’ve got my salute. Me?? I’d probably bel able to buy the house about the time I retire. Even with the housing bubble bursting, saving up to buy a house in cash is difficult because the median housing price keeps creeping up over the years. By the time you save up the $150k (just a number), the house will be priced at $200k.

7. Try to attend a private college without loans

Disagree here. Attending COLLEGE is the important thing. The difference lies between public and private colleges. State colleges arguably give just as good an education as the private or Ivy League colleges. The difference is in the ‘prestige value’ of the schools. Employers and peers will give a lot more respect to someone that has graduated from Harvard or Yale, vs Univ of Podunk, nowhere. Getting loans to go to college; Yes. Getting more loans to go to private college? Maybe not.

8. Business is all about leveraging debt

Business is all about leveraging ASSETS. Debt can be an asset, but it also can be a liability. The Subprime mortgage meltdown we’re going through is a good example of debt turning from an asset to a liability. The mortgage companies have to continually give out more loans to keep the income coming in. If the money coming in drops below a critical level, like it’s starting to now with all the defaults and home repossessions, the working capital shrinks to the point where they can’t make new loans, and the spinning business engine starts to slow down and stop. Microsoft is a HUGE company with virtually no outstanding debt. They won’t be affected by any increase/decrease in the credit lending policies of the big banks, unlike the companies that have a large percentage of their working capital as bank loans.

9. Using debt wisely improves your credit score

Agree, just as using debt unwisely can destroy your credit score. You are responsible for your actions.

10. Certain debts are tax deductible

Some debts are tax deductible only to encourage people to get those debts. It doesn’t help the joe-sixpack consumer, but the big businesses originating the debt, and they are the ones that successfully lobbied to get these tax cuts in place. If your reason for getting a loan is to reduce your taxable income, there are much easier ways to do that and still save more money. You can contribute to a charitable organization and get a one-to-one deduction on your taxable income, rather than the three-to-one deduction you have to pay for with a home loan.

If you’ve got the problem of having too much income to qualify for an IRA, Roth or otherwise, you’ve got many other options available to you other than getting in debt anyway. More people should have that kind of problem!!

This was a great article that got me thinking on every point. Thanks BFP for a thought provoking post.