Every month when you pay your bills, you’re subsidizing idiocy. And there’s nothing you can do about it. Your car insurance rates, for example, are higher because some guys think it’s a good idea to get drunk and see if their pickup truck can fly. Your health insurance rates are higher because those guys’ friends think a healthy lunch is a Carl’s Jr. Western Bacon Thickburger.
There is, however, one area of personal finance where other people’s bad decisions will finance your Caribbean vacation: credit cards. Unlike most financial products that are either bad (payday loans), or good (low-cost index funds), credit cards are as profitable or dangerous as you make them. They can either cause an awful downward spiral of debt and deprivation, or reward you with cash and free plane tickets. I recommend the second path.
In which case: Why would a bank be so generous? Because it hopes you’ll carry a balance on your card and pay lots of interest, as so many other Americans do. In fact, our fellow citizens collectively owe about $870 billion on their credit cards. This is great for JPMorgan, which took in around $5.8 billion in card interest last year. It’s not so good for card-holders. If you rack up credit card debt of, say, $10,000, you’ll pay around $1,500 a year in interest, depending on the rate.
But, for all the inherent risks of embracing plastic, there are perks, too. They help build credit, they offer fraud protection as well as perks such as rental-car insurance, and they’re a uniquely efficient, portable form of purchasing power. “How else can you carry $30,000 in your pocket, with no liability if you lose it?” says John Ulzheimer, the credit expert at creditsesame.com.
So: What’s in your wallet?