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Comment by andrelaszlo | Hacker News Reader

I set up my (Swedish) CC bill to autopay the full amount each month. I only use it for emergencies though. It seems like it's really common elsewhere (the US) to use it for larger purchases. Isn't it very uneconomical?

I recognize that I might be speaking from a position of relative financial privilege, but it doesn't seem limited to people in acute financial distress?

Maybe it works differently too. I've read stuff about having to use a CC to build a credit score, or something along those lines, just to be able to get a regular loan in the future? In that sense it could perhaps be seen as a sort of investment?

Genuinely confused (as always).

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US-based here. Here's my strategy:

Hook up credit cards to bank and setup auto-pay on full balance and treat them like debit cards.

Pay for everything with the credit card that gives me the most points in that category (aka 4X on dining, 3X gas, 4X groceries, 3X travel, etc).

Fly for free multiple times a year by using my credit card points to book flights/transfer to airline partners. Also get a bunch of nice travel perks. My last airport meal + drink was free because of some random credit card bonus.

Credit cards in the US are amazing. You also get what it essentially a 0% loan for ~40 days from after buying something and when the money comes out of your bank account, plus great fraud/return protection from Visa/Amex.

I use credit cards for all of my spending. One gives me 4% back on fuel, another 3x points on travel and dining, etc. Paying with cash/debit is less economical because you forgo these rebates and incentives.

I also pay my cards in full each month so there are no interest charges, just a few with annual fees that are more than covered by the card benefits.

In the US, if you pay your credit card bill in full each month you don’t pay any interest or fees. Most if not all cards give cash back or rewards points in the range of 1-5% depending on the merchant category. So you effectively get a 1-5% discount on all spending compared to paying with cash or debit.

The only economic benefit I see with credits are the rewards/protections it provides for everyday purchases. Here in the states, we don't have a cap on interchange rates for merchants. This trickles down into benefits (For example on my Amex card)

- 1 year extra warranty on top of my purchases, with return protection if the merchant

- Points / 'Cash Back' (much higher multiplier) that can be used to purchase airline tickets or gift cards

This is essentially free money and protections if you use the credit card and fully pay it off, but obviously, most Americans carry balances over and the interest charges basically negate any rewards.

> Isn't it very uneconomical?

On the contrary, the terms of credit cards include a "grace period": if you buy something on a card in the first day of a statement period, you will get a bill due to pay it off 45-50 days later (statement period closes after ~30 days, and then you bill is due a few weeks later). If you pay in full, carrying no balance over, there are _zero_ interest charges. Especially in today's rate environment, floating a few thousand dollars month to month for free is worth actual money, like a hundred bucks, if you invest in a 5% APY saving acct.

On top of that, many cards include a "cash back" feature, where every dollar you spend through the card gets you miles or a few pennies back. Figure about 2% cash back is a competitive rate, 2.5% at the top end, so it's about half as valuable as the float. This is basically fueled by networks charging merchants fees to accept credit card payments.

In theory merchants raise their rates to compensate for the merchant fees. In practice people paying cash pay the same as those who don't, so you might as well jump ship on this collective action problem.

North American credit cards can have very strong benefits (which merchants pay for in their fees) giving 1-5% back on purchases, and other deals/discounts/perks, so there is a lot more perceived value to using them and (intending) to pay it off in full.

But that also means it’s easy to just keep using the card, and many people don’t actually use the cards to their full extent to get the full perceived value either.

In the USA, it's very common for credit card companies to provide rewards or rebates based on your spending. Meanwhile, interest on purchases doesn't begin accruing until 30 days after the purchase.

This means using a credit card is free money. I spend $100 on my credit card, I get $1-3 back depending on what I'm buying, and if I pay in full on my next statement, I pay $0 in interest.

I'm in the UK and have my cc setup to auto pay the full balance each month too. However I use my credit card for everything except my direct debits like mortgage, utilities etc.

Literally everything else is on credit card. I just get much more protection. It I buy on debit card then I need to get my money back (doesn't arrive, faulty etc) it's so much more of a hassle.

In USA it's about collecting rewards points and travel benefits. Airlines and hotels are addicted to the cards.

https://creditcards.chase.com/travel-credit-cards

The interchange fees in Europe are too low to support these kickback games at scale.

In the US you typically get a kickback ranging from about 1% to 5% for different kinds of purchases. Costco, for example, sends you a check every year based on your purchases, so it makes sense to use your Costco card to pay for everything versus a debit card.

Debit cards took a lot longer to take off in the USA than in Europe. They're picking up now, though.

And Europeans took a lot longer to move from cash to electronic payments, IMO. The US has been using credit for everything for as long as I can remember.

I never use a debit card because of their relative lack of fraud protection. Even where fraud protection policies are similar, the money is still missing from your cash account during a dispute. Things may have changed, but this was the case when my habit was formed, and now I just don't use them at all, except for cash from ATMs.

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