Americans love credit cards. We love to use them to earn rewards, to transfer balances and much more. In fact, there were over 550 million credit cards in circulation, as of 2014, and that’s just the three major card providers.
Have you ever stopped and asked if your credit card company loves you? I’m not asking if you’re a “good” customer, but whether or not they love you. You may not realize it, but your credit card company shows their love, generally speaking, in one specific way.
When More is Given, We Borrow More
A recent study reveals a not too surprising statistic – when credit card issuers extend us more credit, we generally use as much of it as possible– nearly to the point of maxing out the additional credit offered. It would be one thing if we were to pay that off as soon as possible, but we’re not. We’re a society of revolvers who don’t pay off their credit cards but carry a balance from month to month.
I too used to be a revolver. I had significant credit card debt and was kicking the can down the road each month. The interesting thing is that over that time, most of the cards I carried extended me more credit the more I spent. It makes sense, on one level, as they knew they’d make more money from me thanks to not paying the cards off each month.
Does This Mean Credit Cards Are Evil?
It would be easy to look at studies like the one cited above and believe credit cards are evil. There are many who believe that and I can understand the argument to a certain degree. It’s certainly possible that issuing banks will extend additional credit only because they know the borrower will spend the money.
That aside, credit cards aren’t truly evil. They’re used in the wrong way. Like any tool used the wrong way, misused credit cards rack up additional debt. However, if you use credit cards the right way, they can be a great way to maximize your finances to put yourself in a better situation. The key point is you need to know what you’re doing.