I was 24 when I got my first credit card, and for a long time it was my one and only.
Even though I’ve been writing about credit cards and rewards for a while now, I don’t keep many cards in my wallet and I refuse to pay an annual fee. I know I’m leaving cash back on the table, but I just can’t shake the feeling that more cards means more risk.
I blame my parents.
When they came to the U.S. from India in the 1970s, credit cards were just beginning to litter the retail landscape. Cash was still the most common method of payment for everyday purchases, and as immigrants new to the country, my parents were especially cautious when it came to finances. They saw credit cards as a fast track to excess spending and debt.
My parents’ perspective still plays a big role in how I look at credit cards today. But while much of their advice still holds water, some might need refining.
Here are the lessons I still hold onto, those that deserve another look and how you might reconsider how you choose and use credit cards.
Lesson #1: Credit cards are just a substitute for cash
I remember my dad telling me at an early age that credit cards were nothing more than a substitute for cash, not some sort of personal loan.
My parents never used a card for anything they couldn’t easily pay for with cash. A credit card wasn’t for buying something you couldn’t afford, they said — it was simply a matter of convenience. Instead of carrying $500 in your pocket, you could just carry a little piece of plastic.
I still think that’s a great approach. I never use my card for expenses I couldn’t pay instantly with cash if I needed to.
The fact that my parents held this perspective is no surprise to financial consultant Ofir Sahar, CEO of Barter Insurance. “Most individuals in such families associate credit cards with great responsibility and are very careful in using them…There is a warning as to how one uses their credit.”
That said, my parents’ advice might not work for everyone. Sometimes you need to pay for something, but just don’t have the cash to cover it — like an expensive home repair or medical bill.
It also doesn’t take into account zero-percent APR welcome offers, which are a common feature on many cards now. These offers typically allow you to avoid interest charges for 12 months or more, giving you a low-cost way to pay off expenses over time.
If you can take advantage of such offers and have a payoff plan, credit cards can make big purchases more feasible. Intro APR offers are also far less risky than the deferred interest financing offered by many retailers.
Sahar believes that seeing cards as merely a substitute for cash is not the “right mindset.” Instead, Sahar emphasizes that “taking a responsible approach towards spending by creating a credit history or having [the] ability to earn rewards and in critical situations…can widen one’s financial means significantly.”
Sachin Puri, a first-generation personal finance expert and Chief Growth Officer at Liquid Web, also points out that “unlike cash, credit cards can also build your credit score when used responsibly, which is an added benefit.”
Still, my parents’ lesson is hard to shake.
Recently, my brother suggested I take advantage of an intro APR offer to pay for new appliances. But I reminded him this went against what we were taught: Credit cards are just a substitute for cash. He agreed — if you don’t have the money, you shouldn’t be using a credit card. You’re better off saving up until you can afford making purchases on your card.
Lesson #2: Don’t pay annual fees
Some of the best rewards cards charge annual fees. Typically, the higher the fee, the better the perks. But I’ve stuck with a no-annual-fee card strategy.
That’s at least partly because my parents taught me annual fees were a trap. Though the fees might be worth it on paper, they were simply too risky. As my parents saw it, any unnecessary spending could quickly snowball into debt.
My colleague, credit cards writer and expert Ryan Flanigan sees it very differently. “Today’s cards offer exponentially more in terms of rewards and benefits,” he says, so annual fees can be more than worth it, as long as you can offset their cost with rewards and perks every year.
And he’s right.
Maximizing credit card rewards has become an integral part of many people’s everyday spending. Cards with annual fees not only offer higher rewards rates than no-annual-fee cards, but also valuable benefits like lounge access, subscription credits and anniversary miles.
So while a card like the Capital One Venture X Rewards Credit Card has a relatively high annual fee ($395; see rates and fees for more details), this cost can be offset easily based on the value of just two perks: the annual Capital One travel credit and the anniversary bonus miles.
If you feel confident you’ll get great value from a card’s rewards and perks, paying an annual fee can be a smart choice. I know that by avoiding premium cards, I may be leaving money on the table.
But for me, the hassle of offsetting an annual fee just isn’t worth it. I still align with my parents’ avoidance of card fees, but where they saw risk, I mostly see inconvenience.
Still, the value potential is hard to dispute. This is a lesson I’ll definitely revisit.
Lesson #3: Avoid interest and always pay your balance in full
My parents never once paid only the minimum due on their credit card. They always paid the full balance at the end of the billing cycle. Since they used their credit card just like cash, paying the bill in full was never a problem — they had the money to cover it.
Two principles drove my parents’ hatred of interest: 1) You should never pay more for an item than its listed price and 2) You shouldn’t carry any debt besides your mortgage, if you can help it.
Of course, my parents were fortunate to have steady jobs and to have never faced a situation that made paying interest unavoidable, like a medical emergency or being laid off. Even a few of my Indian-American friends who grew up with similar views on credit cards have had to break this rule and only make partial payments on their balance. Sometimes, paying interest may be the only option.
That’s why it’s important to keep in mind a card’s APR if you think you may need to carry a balance.
Depending on your goals and how long you expect to carry a balance, an APR might not be the most significant factor to consider, but a low-interest card can be beneficial if you can only pay the minimum balance in an unexpected situation.
Indeed, a recent Bankrate survey found that half of American cardholders carry card debt. While paying interest might be necessary in an emergency as short-term relief, it should be a last resort. You can quickly fall into rising debt and damage your credit score and financial health.
Luckily, I’ve always been able to avoid interest and debt. “This is one piece of advice that never gets old,” Puri says.
I see this as one of the most valuable lessons my parents passed down to me.
[Avoiding interest] is one piece of advice that never gets old.
— Sachin Puri
Chief Growth Officer, Liquid Web
Lesson #4: Use cards sparingly
Since my parents saw credit cards as merely an alternative to carrying around large amounts of cash, they only used their card for big-ticket items when I was growing up. They always paid for everyday purchases like groceries and gas with cash. At the time, using a card to pay $1.00 for a cup of coffee would have seemed superfluous and silly.
Here’s where I make a clear break from my parents’ advice. I use my card for practically everything.
Different types of rewards cards have made it easy to earn cash back, points or miles on nearly all your transactions. Depending on the card, you could earn as much as 5 percent in rewards on everyday purchases like gas and groceries. Even with a 2 percent flat-rate cash rewards card like the Wells Fargo Active Cash® Card your earnings can really add up.
If I’m not paying an annual fee and I always avoid interest by paying my balance in full, why wouldn’t I use a credit card? For someone like me, the rewards are there for the taking, with no real downside. Paying cash seems like a missed opportunity.
Plus, I mostly shop online, and I’ve even encountered a handful of stores that don’t accept cash anymore.
Puri agrees: “Using cards for everyday purchases, especially rewards cards, can be a great way to earn points or cash back, but only if you pay off your balance in full each month. If you’re disciplined about spending, credit cards can work as a tool to enhance your budget, not restrict it.”
Unlike what I was taught growing up, my advice is to use your cash back cards wherever you can — enjoy the convenience and reap the rewards. It’s a great strategy for everyday savings.
Even my mom has come around.
Lesson #5: Don’t carry too many cards
My parents only carried one card between them, and my mother still sticks to this rule. I currently hold three cards, but I’m still wary of adding too many cards to my wallet.
For a long time, I only had one card. I got another card because my bank advised that having multiple cards would help my credit when applying for a mortgage. While I did get a second card, I did so reluctantly and barely used it. My parents had taught me that having more than one card was extravagant, might lead to uncontrolled spending and could lead to debt.
While I thought this perspective was a little extreme, I could see where they were coming from. I only used my second card once or twice a year to keep it active. There were benefits to sticking mostly to one card, too. Using just one card helped me manage my budget and made it easy to keep track of my spending. I also had fewer bills to worry about.
Sahar advises, “It is important to recall where this lesson is coming from. It is not about gaining something at all, it is about simplicity.” For Sahar, carrying multiple cards has advantages such as helping to build credit by increasing your credit utilization.
“It is all about using multiple cards for what they serve[:] having a card for travel and a card for cashback. With payment alerts or budgeting apps, you can keep track of them and enjoy their benefits without any extra hassle,” Sahar says.
Over the years, I’ve grown more confident in managing my expenses, and as an editor working on credit card stories I know the benefits of carrying more than one card. If you take the time to strategize, you could earn high rewards on your top spending across a few cards, pool points or transfer points or miles to an airline or a hotel partner.
Learn more: How many cards is too many?
You should always make sure getting a new card will not add to existing debt or contribute to overspending. I may apply for a fourth card soon, but for me adding a card to my portfolio will always come with some hesitation. It will always have a touch of lavishness to it and some risk.
The bottom line
If I had to pin down a running theme in my parents’ lessons about credit cards, it would be: Avoid card debt at all costs.
Whether that meant using credit cards infrequently or paying in full every month, their practice helped safeguard them against overspending. While some lessons may not apply now, others continue to be sound advice. I’m thankful for what they taught me, and I’ll continue to add my own lessons as I grow in my financial journey.
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