Lizzy and Lissa break down the hidden costs – financial and otherwise – of credit cards. When managed wisely, credit cards can unlock amazing perks like travel rewards and cash back. But they can also be a slippery slope into consumer debt. Are credit cards really worth it?
Lizzy and Lissa break down the hidden costs – financial and otherwise – of credit cards. When managed wisely, credit cards can unlock amazing perks like travel rewards and cash back. But they can also be a slippery slope into consumer debt. Are credit cards really worth it?
Main Topics
00:00 Maxed Out Cards
01:33 Running The Numbers Segment
03:44 How We Use Cards
10:03 Credit Card Strategies and History
20:51 The Evolution of Interest Rates
23:10 Unexpected Expenses
26:20 The Slippery Slope
28:40 Strategies for Managing Credit Card Debt
38:58 Benefits and Rewards
44:13 20 Cents Segment
References for Statistics
https://www.npr.org/2024/05/14/1251295805/credit-cards-debt-inflation
https://www.forbes.com/advisor/credit-cards/credit-card-statistics/
https://www.lendingtree.com/credit-cards/study/credit-card-debt-statistics/
https://www.experian.com/blogs/ask-experian/how-credit-card-usage-differs-by-generation/#s1
Lizzy: Did you know that according to the New York Fed's report, almost one in five credit card holders has a maxed out credit card?
Lissa: I didn't know that, but I'm kind of not surprised.
Lizzy: 20%.
Lissa: 20% of people, yeah, I hear stories.
Lizzy: Damn.
Lissa: Yeah, it's kind of rough out there with credit cards.
Lizzy: So today we're talking about, are credit cards worth it? Let's talk about it.
Lissa: Welcome to Net Net with Lizzy and Lissa, where we analyze hidden costs and empower you to make your own damn decisions in life. Each episode covers a different facet of life, and at the end of each episode, we give our takes on whether we think something is net positive or net negative.
Lizzy: I'm Lizzy, a strategist and consultant with over 17 years of experience in finance and investing.
Lissa: And I'm Lissa, a personal finance expert and an accredited financial counselor. We're best friends who talk about money...
Lizzy: And everything else.
Lissa: In today's episode, we are discussing credit cards and personal finances. We want to remind you that this episode is for informational and educational purposes only, and it should not be misconstrued as financial advice. We share our experiences to help educate you guys, but you should always consult a professional for guidance as needed. So are credit card's worth it?
Lizzy: First up, running the numbers on credit cards.
Lissa: We opened up the episode saying that one in five people have a maxed out credit card, but let's look at how many people use credit cards. The Federal Reserve reported that 82% of adults in the United States had a credit card in 2022.
Lizzy: Damn, damn.
Lissa: And in their study this year in 2024, they found that about 47% of card holders carried a balance for at least one month in the past year. So that's people paying interest.
Lizzy: That part doesn't surprise me.
Lissa: Yeah.
Lizzy: Yeah, that doesn't surprise me at all.
Lissa: Man.
Lizzy: Okay. And 73% of Americans have a credit card by the time they're age 25, which means that credit cards are often the most common first credit experience that young adults have.
Lissa: I mean, the way they in college is where they make you sign up for credit cards, yeah, that makes sense. In an experienced study, they showed that Baby Boomers and Gen X have an average of four credit cards, whereas Gen Z, people from age 18 to 25 have an average of two cards. Millennials are somewhere in the middle around three credit cards per person.
Lizzy: That doesn't surprise me. I think you kind of accumulate and you don't want to close them, which we'll get into.
Lissa: Yeah.
Lizzy: All right, now let's talk about balances. Lending Tree reports that Americans have a of $1.142 trillion of credit card debt and by state, credit card holders in New Jersey have the highest average credit card debt of any state at just under $9,000 per credit card holder on average. And that's as of the end of 2023.
Lissa: Okay. 9,000 as the highest average credit card debt. Mississippi has the lowest amount of average credit card debt with card holders owing about $5,000 on average.
Lizzy: It's a pretty big spread. It's almost double.
Lissa: Yeah.
Lizzy: New Jersey. I mean, I would imagine it's cost of living.
Lissa: Yeah.
Lizzy: Okay. But we all know there's more to life than the numbers, so let's talk about it.
Lissa: Let's talk about it.
Lizzy: Do you use credit cards?
Lissa: Oh, I use credit cards. Do you?
Lizzy: Yes, I do.
Lissa: Yeah.
Lizzy: Yeah. Okay. What's your approach? How do you think about it? How do you use them and why?
Lissa: For the most part, I now use them in what you would call hacking or travel hacking, which is that I run everything through credit cards where credit cards are accepted. Well, I'm actually carrying a balance right now. A pretty big one.
Lizzy: Yeah. Well, talk about it.
Lissa: Yeah. So when I say big, I don't know, like 20,000.
Lizzy: Okay. How do you feel about it? Are you comfortable with that?
Lissa: I'm comfortable with it because I actually just made a YouTube video about this explaining myself. It was a strategic decision.
Lizzy: Sure.
Lissa: So Alan, my partner and I, we are in the middle of selling our home, and as we were about to put it on the market, our realtor was doing analysis on the market and to see where our house stood against everything else. And she basically found that things were selling a lot faster and for much higher if they had remodeled kitchens and other things in the house. So she recommended a list of things for us to update, upgrade, remodel, and when we looked at our finances, we were like, okay, well we don't really know where to pull that money from, emergency, savings investments. We decided to put it on a credit card.
And the reason for that was the convenience, because it was credit already available to us immediately. We were able to start, we literally had a contractor come give us a quote and we were like, okay, we could start tomorrow because we could pay him in installments on the credit card. And then taking on that much debt, we had to make sure that even if we were going to pay interest for a certain amount of months on the credit card, that we would be getting a return in the long run. So we were kind of advised that, all right, spend 20, 25K on this remodel. And more likely than not, there's no guarantee here, but more likely than not, it'll return at least like a 50K or more increase on our sale price.
Lizzy: Sure. Yeah, that makes total sense. So is that the highest balance you've carried?
Lissa: No, I think I've carried bigger balances in the past.
Lizzy: Okay.
Lissa: I was really bad managing finances and my credit cards maybe like a decade ago.
Lizzy: All right, talk to me about your journey with credit cards.
Lissa: Yeah, yeah. Oh, okay. So bringing it back from the very beginning, my mom set me up with great credit.
Lizzy: Oh.
Lissa: Yeah.
Lizzy: Hell yeah.
Lissa: I don't remember if she set me up as an authorized user on one of her cards when I was younger, she might've and obviously not given me the card to mess up my own credit. But what happened was when I was 18, she opened a credit card in my name, which I think now since there was a credit card act in 2009, that kind of changed how you can get a credit card at what age, but back then before that act, as soon as you turn 18, you can get a card in your own name without having to prove you have income or anything like that. So she opened a card in my name and didn't give it to me, but she used it for small things and paid it off every month and that built up my credit. So by the time I graduated college and she finally gave me the card, I had decent credit.
Lizzy: Mom hooked you up.
Lissa: Yeah, she hooked me up. And it's kind of sad because I've heard stories from clients where similarly, a parent opened up a credit card in their name, but for wrong reasons.
Lizzy: Nefarious activity.
Lissa: And messed up their credit so that they're starting adulthood in a tougher situation.
Lizzy: Set way back. That's awful.
Lissa: Yeah, so that was my first. So my mom basically taught me the right way to use a credit card. That didn't actually happen when I was in my early 20s trying to make life work. I was living paycheck to paycheck. I wasn't making a lot of money out of college. And so I found that I felt like I had to use credit cards to get by.
Lizzy: Okay, sure. I think a lot of people find themselves in that situation. And I think sometimes it just is, and it can be a means to an end to give you some breathing room, especially if you have a line of sight on a higher income in the future or if it's a temporary situation. The challenge is really when that just builds on itself and you dig yourself deeper and deeper, and it can be incredibly overwhelming.
Lissa: Yeah. I mean, now that I'm older and I'm a financial counselor and I have a better relationship with money and I spend very much according to my values, I didn't have that when I was in my 20s. So like you said, it was too conflated between necessities and discretionary spend and everything ending up on the credit card until it just added up. I couldn't tell you that I only used it for groceries and food and get in and actually living expenses. I probably used it for everything and didn't really track and I probably overspent.
Lizzy: Sure. And I think that's almost a rite of passage for a lot of people is to have that experience and figure it out. And hopefully you can get through it without major damage, but in some ways that's how you learn how to budget and how to be responsible with your money or with your credit.
Lissa: So that took me years to get out of. And then the difference between now where I'm using a credit card line as leverage to make this investment into the home, which hopefully will return double what I put in, night and day. I think some people might wonder, why would you put on a credit card? There's so many other ways you could borrow money for a lower interest rate than a credit card. But it really came when Alan and I were trying to figure it out. We were like, it's just easy. It's already there.
Lizzy: Sure. Yeah, and depending on your goals or your particular situation, the cost of leverage is not the most important thing. And this is kind of going on a tangent from an investment standpoint, there are funds and investments that use credit, use leverage to do exactly what you're doing. They're essentially investing more money to get a higher return on borrowed money. It's a really common thing. The cost of that capital isn't always the decision maker.
Lissa: Well, we felt like what we were paying for in interest, so we've carried a balance a couple months now because we're still in the process of it all. And so say we've paid $1,000, $2,000 in interest, we count that as we're paying for time, because it would've taken us time to move money around, investments around, and the market's not great right now for some of our investments to sell at a loss. So it just made sense.
Lizzy: And stress and yeah, peace of mind. There's definitely value in that. I operate in that same way. That's something I probably wouldn't think twice about.
Lissa: So what's your journey with credit cards since you've become an adult?
Lizzy: I knew nothing about anything growing up. I don't know if my parents used credit cards. We maybe did, but we didn't have a lot of money. It wasn't talked about. So I somehow ended up with the mindset of they're dangerous and bad and I'm never going to have one. And so I had a bank account, but it never even occurred to me. I was like, that's scary. And then when I was 24, 25, I was on vacation. I was living in Pittsburgh at the time in grad school. I came home for the holidays, I think, and my car was totaled while I was home. Someone hit it on the side of the road and totaled my car, which was paid off. I had no debt.
And I think I thought I had full comprehensive coverage, but I didn't. So I needed to go buy a new car. I flew back to Pittsburgh and I had no credit, none. I had no reason to have built credit, and I ended up having to buy this shitty ass frustrating car. There are no national banks in Pittsburgh, like a Bank of America, there's nothing. It's only regional banks. They had to run my credit like, 15 times to get me financed with a co-signer for a 16% interest rate.
Lissa: Oh my gosh.
Lizzy: On a car.
Lissa: On a car.
Lizzy: 16% on a car.
Lissa: That's high for a car, you guys.
Lizzy: That is crazy high. And so that was a big reality check for me of I thought I was doing the right thing and actually credit is important and useful in navigating this world. So I started with just a basic card from my bank with I think maybe a $500 limit in the beginning and then went up. Actually that card, I'd had forever and I hadn't had run any expenses through it for a while and it just kept staying open. And then a month ago I got a notice that they're closing it. I'm like, fuck, because that affects your credit.
Lissa: You know you can call to have it reopened though?
Lizzy: Okay, I'm going to do that.
Lissa: That happened to me. It depends on whoever's providing the credit card. But that happened to me with the card that my mom opened for me.
Lizzy: Really?
Lissa: Because as I became an adult, I opened my own cards and that became the one that just sat there that I didn't use. I'm like, oh, let me leave it open. It has the longest length of history, but I never used it. It does have rewards on it, but I just didn't think to use it. And then they closed it and then it tanked my credit. And so I was like, oh no, what do I do? I looked it up online, I gave them a call and I was like, "Oh, I didn't mean to, I've been meaning to use this card again. I just put it to the side while I was like, whatever." I just made something up. And they were like, "Oh yeah, we're happy to open it again, whatever."
Lizzy: Yeah, that's great news.
Lissa: Typically-
Lizzy: Because if you don't know, the length of your account is a huge, huge factor in your credit, and so you want to keep them open as long as possible or it really hurts you.
Lissa: So just to rewind it back, so we're not going to go into the whole credit system, but basically credit is this system that exists that's basically like your trustworthiness when it comes to borrowing money and everyone supposedly starts out with a clean slate. When you become an adult, you have to start proving that you can borrow money and pay it back. And that happens through what we're talking about in this episode, credit cards. But it can also happen with installment loans like your car-
Lizzy: Loans, yeah. Student loans.
Lissa: Or mortgage and things like that.
Lizzy: Mortgages, yeah.
Lissa: And so that's why I said my mom started me off with good credit. I already had a score compared to you had no score.
Lizzy: Yeah, when you start with nothing. And I think credit cards are the entry point for most people, I would say.
Lissa: Yeah, because it's relatively, for an installment loan, like a car, typically you need a down payment or something like that, and it's a bigger amount that you are trying to finance. Whereas a credit card, they'll open it for you because a credit card, they're trying to make money off of fees and interest that you end up paying them.
Lizzy: Well, that's the thing. In general for a given bank, a big bank that lends on all different types of loans, including credit, they're going to profit the most from the credit card. So they're incentivized. That's why you get those things in the mail. So that was kind of my entry point. I gradually started building it and then I switched a couple times. Right now I have them all through my bank with Chase. I've never done the external card just because I was satisfied with those ones. And then I'm reluctant to open too many accounts, but I have a travel card, and then I also have a card for my business. And because they're both through my bank, I can combine my points. I know I'm not probably legally supposed to do that, but I do.
Lissa: Yeah, well that story for another day.
Lizzy: That's a story for another day.
Lissa: Story for another day.
Lizzy: Yeah, and I get thousands of dollars in points. That reminds me of something that came to my mind the other day. I was talking to someone about credit cards who hasn't used travel cards to get points. It might've even been my mom. And we were having basically the same conversation, I was telling her how I use it. And I was thinking that it's really interesting the way people perceive cash back, points or cash back is one point for $100 typically. Is that right?
Lissa: Depends on the card.
Lizzy: But that's one common. And so if you get, that's 1% cash back. Some cards will give you 5% cash back, and that's really high, high end. That's a great deal. And it's funny to think of that same 5% in context of other things. Like for a stock, a 5% return is very mediocre. Or even if you're going the other way and thinking of a store offering you a discount, like a coupon or promo code, 5% off, you wouldn't even waste your time.
Lissa: Yeah, you're like, 5%, no.
Lizzy: You wouldn't even give them your email. Isn't that so funny?
Lissa: Yeah.
Lizzy: I wonder what that is. Is it just the positioning and the psychology of it?
Lissa: Yeah, I think it's the positioning, which kind of brings me back to how credit cards came to existence. I actually didn't know too much about the history. I had heard this before, but basically it started off with a Diners card. I think that's what it was.
Lizzy: Diners Club, yeah.
Lissa: A Diners Club card. This was in the 1950s. And what it was was like there was a restaurant or an establishment that was like, oh, you don't have to pay. They wanted their patrons to feel like part of as a member, so you can just put it on your account and pay it later.
Lizzy: Put it on the tab.
Lissa: And in order to track whose tab was whose, they issued a card. And then over the years it started evolving into not just for a particular establishment, but these networks where Visa and MasterCard are the most known credit card networks. Visa and MasterCard, they don't issue their own cards. They're not these companies that are like, all right, we're creating all these cards. They work with other banks, financial companies, wherever to provide these cards where people can put charges on. And then so a lot of, they have their own deals of how they make money between them, but then ultimately money can be made from the end consumer who's using the credit card. But the whole thing where we are pairing rewards and things like that with the usage of credit cards, that didn't happen until much later, like '80s, I believe.
Lizzy: Okay, okay. So it's fairly modern. That's interesting.
Lissa: Yeah.
Lizzy: And it's funny thinking about the origin of this. I can imagine way back when, there was always some kind of system for this. You go to the general store and you have credit.
Lissa: Because you go there so often and it's just easier than having to pull out your card or cash or write a check every single time.
Lizzy: Yeah, or you're in different periods of time or different civilizations, there wasn't cash, it was like a barter system. So kind of credit or IOU, that thing has existed, lending in different forms probably forever.
Lissa: Yeah, but I don't know the origin of who came up with the idea like, all right, to incentivize people to use their card more, let's give some rewards. And obviously those rewards, they're great, but they are never going to equate to what other people are paying fees on for the card.
Lizzy: Absolutely. Unless you're doing the hacking approach, it makes you feel like you're doing something worthwhile when it's just costing you a hell of a lot of money. I'm curious, and I don't have the data on this, but I wonder how interest rates for credit cards have evolved since the beginning. Has it always been that 15 to 20% annual interest rate or did it start smaller and grow over time? Do you have any idea?
Lissa: No, I have no idea.
Lizzy: Interesting.
Lissa: Yeah, but it is interesting to know because as usage increased and there's more rewards and there's more people bought into the idea that it's convenience. Because here's the thing, if you're carrying around cash, you get robbed, cash is gone. You can't tell the police, "I got robbed for this much." Who's going to give me that money? So there's something that a card is offering in terms of safety, just on a very basic level. So you can carry around a credit card, even if someone steals it and uses it, you have some sort of protections around the max you would have to pay for if someone ran stuff on your credit card. It's not going to affect your bank account, your actual assets. So there's some advantages to using credit cards in that way, but the more this idea of using cards became widespread for many reasons, for rewards, for this convenience. Now, these credit card companies and the credit card networks, they have so much power over a consumer, they probably had the ability to increase those interest rates over time. That'd be my guess.
Lizzy: Oh yeah, I would imagine so. And I think depending on the card and the perks, obviously rates vary. One thing, I don't know if you've seen this, I'm starting to see with my card, if I have a large purchase, it will give me the option to pay it over time-
Lissa: Over time.
Lizzy: And typically at a lower rate. So kind of a very small consumer loan. And that's kind of going in the opposite direction, which surprises me. And I think some of it is competing with Affirm and buy now, pay later type of products that are out there that just make medium-sized purchases a little easier.
Lissa: Yeah. Well, going back to what you said about you having to finance a car because this thing happened, an emergency happened and because you had such a high interest rate on that loan, it forced you to or it motivated you to build your credit. I had a similar but different story. Luckily, I already had good credit that my mom helped me with, but one of the first times I took on credit card debt was because something unexpected happened. My laptop in college broke. Oh, this was grad school, my laptop broke and God forbid I had to take notes written. So I was like, I need a laptop, I have to figure this out. And so I ended up putting a new laptop on my credit card, which is what... There's so many things that can happen in life that affect whether or not you use credit cards or not.
And that's one of those things that was unexpected, unplanned for. I did not have an emergency fund back in the day. No one taught me about that. I mean, I was working part-time at that point too, so I didn't even have the money and I felt like, no, I need this now. I can't wait for it, so I'm going to get this laptop on this credit card with a pretty high interest rate. Now that they have these pay over time things, it's like, okay, if it's something like that, I wish they had that because then I wouldn't be paying these super high exorbitant interest rates on the credit card and it was for something that I actually really, really needed. I think it gets tricky when it's being marketed in a way where no, buy that item you want but don't actually need in life, because you can finance it over time.
Lizzy: Or even not even specific items, just like lifestyle creep. I think it's easy. There's times, like I said, where I'll carry a balance for a month. I'll be like, "I spent a lot this month." Just not realizing it like a purchase here or man, yesterday, this puppy, $300 at Petco, stuff like that where it's just purchases or you go out to eat too much. Depending on how you manage your budget and your finances, it's not always one extravagant purchase, it can just creep up on you. And I think that's the interesting challenge and the heart of the issue with credit cards is they can be a really useful tool as an emergency kind of backup safety net or to help strategically finance your lifestyle or to get these extra points or cash back that you might not otherwise have. Or...
Lissa: Or they can be totally bad, predatory-
Lizzy: Destructive.
Lissa: Destructive.
Lizzy: A trap.
Lissa: Yeah. So one in five people have a maxed out credit card. That's what we said at the beginning.
Lizzy: I feel stressed just thinking about that.
Lissa: I know. So a maxed out credit card is when your credit card has a limit of a certain amount, 2,000, 10,000, whatever, and you have that much of expenses on it currently at the moment. So you can't use the card anymore until you pay down the balance. And the problem is that balances like that, if you don't pay it in full, not only do you accumulate interest and have to pay more on whatever your purchases were, they compound, because let's say you only pay the minimum or you're only paying interest, every month you're getting charged more interest. So it can become a very, very slippery slope into debt and being stuck.
Lizzy: Especially if you're using your credit card because you just can't afford your lifestyle or your expenses without it and then it's maxed out. So you are losing that extra benefit where you can't afford your normal life and you can't afford to pay off the credit card. That's where it really starts to spiral for people.
Lissa: But I think it's tough, because for some people, absolute necessity. Maybe live in poverty or wages just don't keep up with inflation and it's hard to, if you have a certain lifestyle, it's hard to maintain it. And a problem that I see oftentimes is lifestyle creep, which is when you increase your lifestyle when your income increases so you don't end up having any extra money. You just have a nicer lifestyle because you have more money. That tends to happen. But what doesn't happen is when their incomes reduce, or if inflation outpaces their wage increase, they don't deflate their lifestyle, which then means you're going to take on debt and where does this debt live? Personal loans, credit cards, all these places where debt comes to fruition. And so that's the tough part is we subconsciously often increase our lifestyle expenses, but there's nothing in the world that will get us to proactively decrease our lifestyle expenses.
Lizzy: You have to be deliberate about it. So how are you talking to clients about credit card usage or if they are in tough situations?
Lissa: Well, it is tough. I come from an approach of I don't shame anyone. There's no reason to shame a person's credit card or money behaviors. Here's why. Because we don't learn it in school. Even if you've learned stuff at home and maybe you did take a financial literacy class, our behaviors are a result of everything in our lives, not just our parents or school. If we're being fed these advertisements every day, thousands and thousands of advertisements, whose fault is it really that we love to consume and love to spend and love to swipe that credit card? If we're being offered these rewards that look so nice, but we don't actually understand how the math maths, we don't know how that 5% cash back actually works out when we're paying 25% interest. If you don't know things. Because you don't really understand it, no one taught you. Whose fault really is it that that's your behavior if you have that behavior?
Lizzy: And also blaming isn't productive, it doesn't matter whose fault it is. You can have personal accountability and all of those other factors you mentioned. It doesn't change your situation to dwell on that. So moving on.
Lissa: So I focus a lot on money mindset and setting goals because when people start to understand what their own values are and their goals in life, maybe they want to travel more, maybe they want to be able to move cross country, maybe they don't want to work 40 hours a week, they want to work part-time. Then we start to build the financial picture of here's what it would take. Having consumer debt is only going to prevent you from those goals because instead of saving up or investing towards those goals, that money is being used to pay for a thing you purchased in the past. You're still dealing with past purchases, you're going to prevent you from your current day and future wants.
Lizzy: For sure.
Lissa: So there's a lot of that. It's not an overnight thing. It's like it takes months or years to get people to improve behaviors if they tend to overspend, especially with the use of credit cards. But in the meantime, even though that mindset shift takes a long time, there are tips and tricks of how you can incorporate, what's it called, boundaries to protect yourself. So for example, the 48 hour rule or 72 hour rule, whatever rule you want, one week rule. If there's something you want that's not a necessity, it's like new pair of shoes and I have a closet of 50 pairs of shoes, I don't need a new pair of shoes. Put it in your online shopping cart or bookmark it, sit on it for 48 hours and if you still want it, then go ahead and purchase it. But it gives you that buffer time to think about, all right, I can get those, but then it might mean it'll take longer for me to save for my next vacation or this. So you're playing a game of trade offs, but it gives you time to prevent impulse spending.
Lizzy: For sure.
Lissa: So there's little tools like that that you can incorporate while you are trying to improve your finances.
Lizzy: That's really, really critical.
Lissa: Yeah.
Lizzy: Okay. So another question. Let's say someone has credit card debt, they don't have an emergency fund, but they're also interested in investing. How do they allocate their money?
Lissa: All right, this is not financial advice, but this is kind of the strategic way you want to think about it. This is the way I think about it. There's two layers to it. There's the actual technical finances of it, the numbers. For example, if you want to invest, and let's say you can expect a 10% return, but your credit card debt is accumulating 25% interest, financially, it doesn't make sense to invest because that investment's got to be long-term anyway. And don't forget about taxes you have to pay if you do make gains on your investment. Whereas this debt that you have, it's a for sure thing. This interest you're paying to the credit card company exists. It's real, whereas you're speculating on what you would gain on the investment. So the financial actual numbers is one side of it. The other side to me is your mindset and how you feel about your finances. Most times people would be like, I would be so happy if I didn't have credit card debt and it would motivate me to not take-
Lizzy: It'd be a big weight off my shoulders.
Lissa: Yeah, big weight off my shoulders, I won't need more. Or people, if they understand what an emergency fund can do, feel motivated to fill up that bucket. Because guess what? When you fill up your emergency fund bucket, it's there. You're done with it. Now you can move on to bigger better things, like more aggressively paying down debt, investing, and that kind of thing. The question I always get is like, well, I have limited resources. How do I do all of these? So there is no one straight answer. I think ultimately, first and foremost, make sure you pay all the minimums on your credit card debt or any debt so that you don't mess up your credit in the process.
I think that if you can slowly build your emergency fund over time, so what you're doing when you're building an emergency fund is you are trying to beat time. You're trying to put money aside before an emergency happens. So if you are feeling real risky and you're like, nah, nothing's going to happen to me in the next year, then fine, be slow at building up your emergency fund and try to pay down your credit card debt. But if you want that peace of mind to know that if a medical emergency comes up in the next couple months, I got it. I won't go into further debt because of it, then lean your priority towards that, but still pay off what you can on your credit cards. The biggest thing that you want to do in all those things is to not accumulate more debt.
Lizzy: And just dig yourself into a deeper hole.
Lissa: Because then you're just digging yourself into a bigger hole. That's kind of like a peek into what I do in coaching because for some people they can't figure out those decisions on their own. So that's what I do is I help.
Lizzy: It can be overwhelming
Lissa: Coach based on what are your goals, your needs, what's going to motivate you the best? What tools do we incorporate into your life to do that?
Lizzy: And the key part is that there are kind of rules of thumb, but everyone's different, every scenario is different. And a big part of it is you've talked about your emotions and how these things make you feel. I have had friends who are in credit card debt and it feels so overwhelming and it's a huge burden. To lift that burden is significant. And then some people can carry it and they don't care. Or I'll make it up one of these days and having a different approach might be better for them.
Lissa: Yeah.
Lizzy: We're all different.
Lissa: We're all different. I want to go back to earlier you said that through different messages you got, you believed credit cards were dangerous or a bad thing. It reminds me of one of my friends in my 20s. We got into a big fight about... Story time.
Lizzy: Story time.
Music: << It's story time >>
Lissa: We got into a big fight about the usage of credit cards. He thought they were, similar to you, bad, not good. Obviously consumerism forces people to, it leads people to getting into debt because of it. For me, on the other hand, I'm like, yeah, but it enables you to get rewards. And then in emergency situations like when my laptop broke, you can finance these emergencies as a backup.
Lizzy: It's a tool.
Lissa: Yeah, it's a tool. I should have had an emergency fund, but it's a tool. And so we got into this argument about it because we just saw it differently. And at that time, we couldn't see each other's perspective at that time. Now that I'm older, now that I know more, in hindsight, we both had very, very valid points.
Lizzy: And it's okay and to have different points of view.
Lissa: Yeah, and it was all of those things. And now that I understand a little bit more about money, it goes back to your own money story. Your money story is your own personal narrative and beliefs about money based on your experiences.
Lizzy: Sure.
Lissa: So for him, I believe he had a parent or a family member who got into lots of debt because of bad behaviors with spending and credit cards. Whereas me, my parents were able to buy a home because they had good credit because they built up this thing. So we had different experiences, different views about it, and that affected what we thought about it. Where at the end of the day, the more you learn about it, and if you can look at these different financial things as tools, then you can change your perspective or choose not to use it. It's totally up to you.
Lizzy: I think it's just interesting that that's something we generally understand about people and their points of view on most topics, on religion or politics or what they do for fun. Everyone has different life experiences. You're a product of your environment, your socialization, all those things. But we tend to think of money as being very objective, rational, black and white, and sometimes forget that it is just as loaded and emotional as anything else in the world. And when you don't acknowledge those, that's when you start to have that shame or judgment of yourself or others and inability to have that flexible point of view.
Lissa: Yeah. Well, we talked a lot about, obviously there's major downsides, because so many people hold debt and are paying interest to credit cards, but what are some of the benefits you've gotten out of your cards? What do you use your rewards for?
Lizzy: Travel. Yeah, free trips. Free trips. That's pretty much... I have a thing, this is kind of funny.
Music: << It's story time >>.
Lizzy: Story time. Side note, if I have a gift card or in this case, credit card points, I have to use them for something very specific and good. I can't just use it to pay off my balance. Or the reason I bring it up is because last year I was going through a really hard time and as a gift to help me restart my new life, Lissa gave me all of these gift cards to all of these different stores, like hundreds of dollars, this girl. I still have so many of them, because I can't just use it on a random Target purchase. It has to be the Target purchase and so I hold onto them.
So that's how I am with points. I sure could just use them for the cash value. My particular card, I get more out of them when I spend it on travel. And so I pretty much only use it for flights or hotels, but I'm also particular about which ones. So right now I have maybe $1,500 worth of points, which is significant. That's like a whole trip, but I won't use it on a $200 flight. I have to use the whole chunk.
Lissa: Interesting.
Lizzy: Weird.
Lissa: Yeah.
Lizzy: What about you? What are some of the perks you've had?
Lissa: Oh man. So I have travel. I use my cards a lot for travel. I have a lot of credit cards. So maybe four or five years ago, I opened up the Amex Platinum card, and then the year after that I opened up the Amex Reserve, the Delta card, the travel card, and both of these cards cost money, you guys. They're expensive cards. I think it's like 695 for one of them, and then Alan's an additional user on it. So we pay an extra 200 bucks for him.
Lizzy: And those are annual fees.
Lissa: Those are annual fees. So say we're paying 800 bucks to have this credit card. Before I did that, I did this whole cost benefit analysis of like, it's going to cost me 800 a year. What are the benefits and perks I actually get out of this card to make sure that it pays for itself?
Lizzy: I'm laughing, because I was just going to ask you if you did that, because I know you.
Lissa: Of course I did. Of course I did. I actually have a YouTube video on my channel about this-
Lizzy: Really? Okay.
Lissa: Where I show you the spreadsheet that I use to figure it out, because typically your first year on certain credit cards, you'll get more value out of it because there's usually some kind of bonus, but the trick is you have to look at future years. Is it going to pay for itself in future years as well? And then the other trick is you don't want to look at all the perks it offers and think like, oh, it offers this perk, so I'm going to use that perk, when before you knew about that perk, you weren't going to buy that thing anyway because then now you're just chasing rewards, but you're spending more to chase those rewards. You're not actually winning there, you're losing money.
So anyway, all that to say, I did this cost benefit analysis. Something else I did before opening these cards was I looked at my entire year of spending, because what you want to know is how much you typically spend to know if you qualify for a bonus, to know if you can qualify for these various things that the card offers, because some of them require that you spend this much a month or whatever, and you don't want to be chasing them. You don't want to make up expenses so that you hit those rewards. So I had to know that okay, on a yearly basis, I spend 30,000 on a credit card, so that means I'll easily get that bonus. So those are all the things that I've-
Lizzy: That's so smart.
Lissa: Done. Now that this card pays for itself, I use the Delta card all for miles in travel. So not only do I get free flights sometimes, but oftentimes I get to upgrade them, because I love a good upgrade. We got to talk about that in a future episode.
Lizzy: Yes.
Lissa: And on my business cards, usually I'll use those for more like cash rewards or gift cards and things like that. So I have this whole strategy where on one of my cards, I redeem them for gift cards and then I hold all these gift cards. And then when someone's birthday or an event I'm going to, I'll gift $25 gift card to Amazon. So any gifts that I give people throughout the year typically are just things I've redeemed.
Lizzy: And she gives a lot of gifts, y'all. Lissa gives gifts.
Lissa: Yeah, but I don't really have to have a huge gift budget because my points for my cards pay for these gifts.
Lizzy: I love that, because that's very aligned with who you are and something that's important to you, and it gives you that extra benefit. That's really cool.
Lissa: Yeah. All right.
Lizzy: All right, y'all.
Lissa: 20 cents. 20 cents is the segment of the show where both Lizzy and myself, Lissa, get 60 seconds to give our 2 cents on today's topic whether it's a net positive or a net negative. Why is it 20 cents?
Lizzy: Well, you get the opinion of two dimes.
Lissa: All right, Liz, you're up first. You get one minute on the clock. For you, are credit cards worth it?
Lizzy: For me credit cards are very worth it. As I mentioned, that has not always been the case in my life, but I have been fortunate to never max out a card, to never have a stressful balance. I can't pay down. I'm pretty good at paying off my balance in full every month or if I don't, just the way I manage my finances, I tend to know if I have more money coming. So I haven't had that many of the costs of it and I've reaped most of the benefits. And like I mentioned, get a lot of free stuff. It gives me some freedom and peace of mind and yeah, I support it for myself while understanding that it can be challenging and risky for others. Net positive.
Lissa: Net positive.
Lizzy: All right, Lissa, you're up.
Lissa: All right. I am also a net positive. For me, I use them strategically in many ways. I get stuff out of it. I also didn't mention there are some rewards that are very aligned with what I value, which is comfort. So like access to airport lounges and things like that. So I do love them for myself. I do not like the predatory nature of just consumerism in America and the world. I don't like that people aren't taught how to properly use them before being offered them. I think there's a lot that can be done in that space so that people don't fall into debt. Credit cards are still going to make their money. There's other ways that they can make money. It doesn't have to be by being predatory and taking from people. So I hate that part about it, but for me, because of the rewards, net positive.
Lizzy: Net positive.
Lissa: Net positive.
Lizzy: All right.
Lissa: Well, remember, this is what we think right now at this moment in time, but no one can make that decision but you. What do you think? Are credit cards worth it?
Lizzy: Hit us up. Let us know what you think. DM us on Instagram @netnetpodcast or email us at hi@netnetpodcast.com. And if you want to follow us individually, here's where you can find us.
Lissa: I'm @wealthforwomenofcolor on YouTube, Instagram, and TikTok.
Lizzy: And you can follow me on Instagram and YouTube @live_well_Lizzy.
Lissa: All references, statistics, and resources mentioned can be found in our show notes. This podcast is for educational, informational, and entertainment purposes only, and should not be constituted as financial advice. Remember to always do your own research, consult a professional as needed, and feel empowered to make your own damn decisions.