Don’t spend your summer building moutain of debt

It’s summer vacation time, and that typically means a lot of credit charges. During recent online chats, I received a number of questions about credit, including this blunt message from a reader: “Why hate on credit cards?”

I’ll answer that question in a bit, but here’s a brief rundown of some of the other questions that readers had.

Q: Should I have a cash reserve while paying off credit-card debt?

Michelle Singletary: Yes, you still need to save when you are in debt. If you don’t and something comes up, you may get further in debt.

Q: I paid 50 percent of my credit-card balance. It only has a small limit. Once I paid the 50 percent, [the creditor] closed the account. I was actually laughed at by customer service when I wanted to get it reinstated. All of my other accounts with others are paid on time. I feel so disrespected, and I couldn’t even get a customer service manager on the line. Who can I contact now?

Singletary: If you have other cards, let them drop you. Why would you want to deal with a company that treats you so poorly? Just pay off the rest of the card. But if you want to reunite with the company and find out why you were dropped, keep calling and going up the line. Me, I would stay dumped.

“One thing I’ve read as a consistent theme in your pieces has been antipathy toward credit cards,” another reader wrote. “I understand that there are lots of people that misuse credit cards and run up debt, but I think you’re leaving out a few pretty big benefits to credit cards, including tracking your purchases more easily and rewards (cash back, miles, etc.). Why are you so down on the utility that responsible credit-card use can have?”

In full disclosure, I use credit cards. But I’ve seen the devastation these instruments can have, not only on people who are reckless, but also on cardholders who have been responsible. Some people carry a balance but they pay their cards on time and even make more than the minimum monthly payment. But for them things can turn bad — as they did for many people whose financial situations collapsed during the recent economic downturn.

As I wrote during one chat, I’m hard on credit because I see “debt people” — all the time.

Here’s how I approach things when it comes to debt. I try to avoid using “but” and “if” in my advice because some folks, who shouldn’t be using credit, inevitably ignore what follows. Were I to say “credit is great but be careful,” they might only hear or read “credit is great.”

I’m extreme. I know that. But it’s on purpose. If you’re good with credit, you won’t need to listen to me. However, I am talking to the masses, and many of them aren’t good with plastic. I just don’t want to give anyone any wiggle room who needs to hear a tough message to keep them out of debt bondage. Besides, none of us wins with credit. None. Of. Us.

We spend more than if we use cash. Even if we pay the bill off every month. Even if we get reward points. Studies show that when you use plastic — debit or credit — you tend to spend more than if you had to use cash.

Many people are living not above their means but at their means, meaning they are doing OK, and handling the credit only until they aren’t doing OK. They spend easily on credit, and more than they should, when they should be saving for what they want.

That’s why I hate on credit.

I guess I made a convincing case.

“Just wanted to thank you for answering,” the reader wrote back. “I completely understand your point of view now and agree that it’s probably valid for a lot of people.”

Here’s a testimony from another discussion that shows my message is working: “I’ve been a longtime reader, and I just wanted to let you know that after 30 long months, we paid off over $35,000 in credit-card debt and are now credit-card-debt free! Thank you for all of the encouragement and yes, sometimes ‘tough love,’ that you give to everyone. Whenever I felt like we would never get there, I would think, ‘Michelle says you didn’t get into debt overnight and you won’t get out of it overnight.’ Over the past 30 months, we’ve had a complete turnaround in what we value and how we want to spend (and save) our money. I can honestly say we’ll never have credit-card debt again.”

Amen to that. And may your summer vacations be full of fun and relaxation but lacking in burdensome new credit-card debt.