There are other considerations that need to be fixed first. Fraud protection has historically been stronger for credit cards than other means of payment in the US. Likewise cash back vs not.

Fraud protection is inherently better for credit cards, because you haven't spent your money. The bank has spent the money, and you don't have to pay the bank if someone defrauded the bank. So the bank has every incentive to get the money back. Not so with debit. You spent your own money.

That cash back is basically a scam. It's paid for by the credit card processing fees - fees which are charged to merchants and ultimately get passed on to the customer in the form of higher prices. Some merchants even tack on explicit ~$3 transaction fee for credit card purchases, to cover transaction costs.

So the cash back is just a partial refund on your credit card processing fees.

But once the scam has permeated the system, it's to your advantage to participate, because you pay either way.

Every study shows that people spend more money when using credit cards than when they pay cash. It helps the merchant.

Cash also has cost - employee theft, risk of getting robbed while taking it to the bank, it takes more time to handle, etc.

If I had a business, I would not accept cash at all.

In Europe they have debit card with the same level of fraud protection - and without credit.

They're pretty handy just as a form of payment. I've never once carried a balance and never paid a cent of interest to a credit card company, but I use credit cards for basically all of my spending. I get back ~$1000/year in rewards, plus all the convenience of having plastic whenever I want to spend, recurring billing, dispute resolution, fraud prevention, etc.

I'd argue that this suggests another hypothesis that the article only partially considered: high interest rates are a cross-subsidy to attract the 40% of credit card users who never carry a balance, and the 40% of credit card users who never carry a balance are a marketing expense to normalize credit card use and make the 60% who do think it's completely acceptable to spend without a thought. I get literally thousands of benefits from the credit card company, and I don't pay a cent. That money has to be coming from somewhere, and I'd bet that it's coming from the 60% of consumers who pay usurious interest rates.

> That money has to be coming from somewhere

If you read the whole article, you would learn that it is actually coming from you, via the merchant. Which means you are likely paying higher prices. Now you pay the higher prices either way for the most part, so you may as well enjoy the kickback^W rewards.

I'm aware of merchant transaction fees, but they're insufficient as an explanation. Just run the numbers. Say that a hypothetical consumer spends $10K/year. The person who carries that as a balance will pay $2700 at 27% interest, plus $300 from the 3% transaction fee, for a total of $3000, and they might get $200 as cashback. The person who doesn't carry a balance will pay $300 and get $200 as cashback. It's pretty doubtful that all the other services a credit card company provides - fraud detection, chargebacks, billing, recurring payments - cost < $100/year. Maybe if you never submit a chargeback and your card never gets stolen, but at best we're looking at them breaking even on their non-balance-carrying customers and making all their profits off the customers that carry a balance.

When you're providing a service to one group at or below cost and making all your profits off another group or another service, that's the definition of a cross-subsidy, even if you do get a token amount of revenue off the first group.

> I'm aware of merchant transaction fees, but they're insufficient as an explanation. Just run the numbers.

I don't have to run the numbers, because I read the article where they did the actual research with real numbers, not your back of the envelope estimating, and they came to the opposite conclusion:

| This leads to our second hypothesis: High interest rates are necessary to recoup the high cost of rewards. However, our analysis shows this is not the case. Rewards expenses are more than fully covered by banks’ interchange income—fees collected from merchants based on purchase volume. On average, interchange income amounts to 1.82 percent of purchase volume, while rewards expenses are 1.57 percent.

Chargebacks in particular are eaten by the merchant, not the credit card company, unless the merchant puts in the effort to show that the chargeback is incorrect or fraudulent.

Or get the best of both worlds: buy now and always pay off your full credit-card bill so you never pay interest and get, in effect, a free short-term loan.

I've made thousands of dollars in cashback and rewards from my credit cards without ever paying a cent in interest. That's the main value proposition of credit cards for people who never carry a balance.

I have operated under this model for about 10 years now as well. But there was a recent Atlantic article that gave me pause: those rewards are exactly the results of credit card companies’ usury, extracting money from other people.

It just doesn’t seem ethical to me (for my parameters) any more. :-/

IMO, that's the correct/normal usage of a credit card. It's how my friends (most of them anyways) and family and myself do it.

It’s also a popular investment strategy to draw the credit ( potentially from multiple credit cards) and invest it.

Popular among whom?!

Cryptobros, maybe?

Among people who optimise their personal finance and investments?

For better or for worse, we've just lived through several decades of rock bottom interest rates.

Sure, you ask someone who's 60 or 70 years old, they'll tell you debt is slavery, you'll end up paying back twice what you borrow, and if you're out of money at the end of this month and you take out a loan you'll be even worse off at the end of next month leading to a spiral of debt. Being disciplined with money is crucial to your family's wellbeing. Because they lived through periods of incredibly high interest rates and saw that stuff happening first-hand.

You ask a 40 year old, though? For most of their adult lives interest rates have been below 1% as the economy staggered from one financial crisis to another. Their lived experience is that buying a car on credit has almost no downsides, you certainly don't end up paying 100% more, you pay perhaps 5% more to get the car 2 years earlier. Even college-educated folk who operates spreadsheets for a living could convince themselves it was better not to pay off their mortgage, better to put that money into the stock market.

It remains to be seen how modern attitudes towards debt will respond to non-zero interest rates. I hope it doesn't go too badly...

Credit cards are just a mechanism for micro loans.

Loans and debt do not exist just because some people lack discipline.

Credit cards offer rewards which are really beneficial to people that properly use them.

In my country, credit cards are safer because they offer better fraud protection mechanisms than debit cards.

Credit cards make it easier to spend money in foreign currencies. I’ve faced issues when trying to pay with a local currency debit card abroad, but I never have faced that issue with a cc. Then, I can just pay my credit card with local currency.

Most of these issues are solvable for sure. But as of today, credit cards are way more reliable than debit cards. At least for me.

I think credit cards do have very valid use cases today.

> Buy now pay later? wait until later.

Yeah, except the sale for whatever you buy may expire before "later" comes. You'd save more money purchasing now and paying off the credit card a week or two later in that case. It's not always as simple as you describe.

So pass and wait for a sale to occur when you actually have the money. Since you save overall, you only have to go through the pain of waiting just once, hopefully in your youth. After that, your savings on the last purchase (in not paying interest) pays for the next purchase, every time, given the same purchasing habits.

There will be another sale. Probably pretty soon.

Life hack: don’t need things you can’t afford

I've always wanted to be able to afford.

Works great with healthcare?

I doubt $1.2 trillion of credit card debt is for healthcare services/products.

The intention was to point out that sometimes people obviously need things (like healthcare) that they can't afford.

Yes, people should just stop being poor…

I don’t live in America but here we don’t use credit cards but we have micro loans and people overwhelmingly sign those for things they absolutely do not need.

I mean, I certainly don't need credit cards, but given the marketplace, they're often the least expensive and the most convenient way for me as a purchaser to pay for a lot of things.

They're certainly not the least expensive way for the merchant, but unless they pass the merchant "discount" as a line item, it doesn't make sense as a purchaser to use anything else. And even then, I think my current card involves the issuer paying me to use it, beyond the discount (4% cash back, but I think merchant fees top out closer to 3%). There's also the delay between time of charge and when the statement is due, although I think the merchant's receipts are also delayed.

> 4% cash back

Which card is this?

US Bank Smartly. Gotta open a savings account, and hold $100,000 combined balances across savings/checking/investment for your household. And have to deal with US Bank.