Are credit cards bad for the economy?

[ShawnD]

Credit cards generally cause people to spend more money because it becomes easier to spend money. On the other side of this, the interest on credit card debt removes money from the overall economy so people have less money to spend.
If you have your typical $10,000 credit card debt (I believe the US national average is about this much), at 20% interest, that means $2,000 per year per person is leaving the economy and going to credit card companies. I tend to think of credit card (and insurance) companies as black holes because the only way you'll see a return is by being a share holder, which most people are not.

Thoughts/opinions?

 

[sheldon]

well yes and no, you have to consider the level of employment the credit card company provides.

 

[Averagesupernova]

This can be argued several ways. Shawn, your argument holds up due to the way people USE them. I use a credit card, but certainly not exlusively. I never have interest run up on it, it is used as a convenience. I don't believe my use would contribute to what you describe. Insurance companies typically invest money in other places. Your argument doesn't really hold up there either. It seems that the general population is typically screwed over by insurance companies though.

 

[FredGarvin]

Just to add to what has been said, I use my credit card to assist in my cash flow only. If at all possible, I pay with cash. However, just like with any business, cash can not usually go everywhere at once which is where the credit card comes in. I doubt my credit score would be where it is today had I not gone through having cards of some kind.

I do think that they are, without a doubt, a pseudo-drug that effects everyone differently. Some could care less about them. Others go off the deep end and over do it and get addicted to their use.

I honestly do worry about our economy in how reliant on credit it has become. I'm only looking at it from a layman's view, I'm no economist. But I get the chills when I see so many people and businesses so reliant on them. It makes it look like another great depression could hit because of them.

 

[Cyrus]

I use my credit card a lot. But I have the money to pay my bill at the end of each month. If people don't know how to use their money, then that's on them. Dont spend what you don't have. If you do, then suffer the consequences. Before credit cards, people had credit or a tab with the store. So this is NOTHING new. Some people are good with money, some are not.

 

[russ_watters]

On the other side of this, the interest on credit card debt removes money from the overall economy so people have less money to spend.

Not true. A credit card company is a business like any other, and that money goes right into it to pay the salaries of the employees and generate the profit for the company. It is exactly the same as any other service industry.

 

[moose]

that means $2,000 per year per person is leaving the economy

Leaving the economy? The only way for some money to truly leave the economy would be to ensure the money will never be spent again, or moved around again... The money is used to pay salaries.

 

[MeJennifer]

Credit drives economies, it´s called capitalism!

Not just personal credit, small businesses need credit, and bigger businesses require venture capitalists and common stock. And even international trade is driven by credit.
Look at the Chinese trade with the US, the Chinese sell goods to the US, and then they borrow us the proceeds by buying treasury bills so we can buy more.