They're far and away the most convenient payment method in the US, both for customers and merchants.

They work globally, for values of "globally" which include "most parts of the first world which you, as someone in the middle or upper middle class, are likely to find yourself in." You can take a wee little bit of plastic issued by a small bank in central Japan and buy dinner in Prague or take a cab in Portland.

They are the cheapest way to access short-term credit, which is an astoundingly useful thing to have available. Poor folks in the US pay through the nose for it; middle class folks pay an amount between "It's literally a we-pay-you-to-access-it situation" and "A relatively modest APR in the teens, which -- in real terms -- means you can borrow $2k for an unanticipated expense without anyone judging you and it will cost you ~$25 a month." (Examples of unanticipated expenses can include medical expenses, car repairs which are necessary to continue one's employment, responding to sudden family emergencies like e.g. a parent's stroke while you're a student living in another state, etc.)

A credit card amounts to a no-haggling 1% discount on all your spending.

They create an instant, durable record of all spending, which is very useful for e.g. businesses or individuals who are attempting to budget better.

Why would anyone ever want debt?

I get the mindset behind this; I was terrified of debt growing up, for family/cultural reasons. I've matured a bit in my relationship with debt as a businessman. $100 in interest is not morally different than $100 in SaaS expenses. If it allows you to grow the business faster than you would be able to from your cash flow, than it's not a particularly difficult decision to borrow.

> They work globally, for values of "globally" which include "most parts of the first world which you, as someone in the middle or upper middle class, are likely to find yourself in."

For the record the same middle/upper class Westerner, if dumped in the global south, will be able to pay for things with credit cards. You can pay for some hotels in Africa with credit cards. You can pay for expensive restaurants there. You can go to an ATM and withdraw money to pay for things that need cash.

Why would anyone ever want debt?

To help start building a credit history so that if/when you do want to borrow more for some reason you've already established a history of successfully repaying debt.

Plus don't forget that the discounting of future cost v money now doesn't just have to be financial. A reliable car and debt repayment now versus saving up whilst running a clunker (with its associated running costs) can have all sorts of related negatives.

"Building a credit history" also seems to be a US phenomenon. If you want to buy a house where I live, you save up about 25%-50% of the price, and apply for a loan for the remainder. To get the loan you prove that you have a stable income, provide some collateral (e.g. your car) and prove that you never defaulted on debt (which doesn't mean that you need a history of loans).

" provide some collateral"

Is that really necessary with a 25-50% down payment?

A 50% down payment in many places in the United States, would mean foregoing home ownership until one was in their 30s. Depending on the market the person is in, (and, of course, the current interest rate, which right now is at historic lows) - the person would then end up spending more money on rent than they would have by purchasing a house and instead paying mortgage+upkeep+insurance+taxes.

It's a little difficult to say exactly where housing prices would be without government incentivized 30 year mortgages.

(there are several incentives, tax deductions, cheap loan insurance, etc)

In a decent housing market, one of the things people consider when choosing a house/making an offer is how large of a payment they can make each month. Feed that payment into a 15 year loan on 60% of the purchase and you end up with a much different level of buying power than if you feed that payment into a 30 year loan on 95% of the purchase (and thus one way of thinking says that you can expect higher prices in general when 30 year loans on most of the principle are easy to get).

> > provide some collateral

> Is that really necessary with a 25-50% down payment?

It's not necessary at all. First of all, a car is not going to be adequate collateral for half (or three quarters, or more) of a house. If it is, you are spending way too much on your car.

And yes, 50% down payment is untenable for the majority of people in the US, even those with upper middle class incomes. Hell, when my wife and I bought our first house we used the FHA and only had to make a 3.5% down payment. In our low cost of living area that meant our down payment was less than what I paid for my first car (which was a decade old when I bought it). No collateral was necessary for that, either.

There are plenty of opportunities to buy property from sellers who can self-finance the deal too.

Credit and debit cards are the easiest way to pay in America, since bank transfers are not really an option for merchants. It's really uncommon to pay by check at the point of sale (to the extent where people might respond negatively), and cash is actually pretty inconvenient in the US due to odd-even pricing tactics giving everyone pockets full of small coins.

Most people would agree that the most intelligent way to use a credit card is to treat it as a debit card and never incur a balance. Instead, you'd pay each month's bill in full. This way, you pay no interest on your debt; in fact, you are effectively incurring zero debt. Moreover, a lot of credit cards offer rewards programs in terms of cash back or "points" as a percentage of your expenditures. With some mixing and matching of cards, you can easily get 2-3% cash back on your aggregate purchases, or rack up some free airline flights.

I actually find this to be a huge moral gray area; the reason that Visa, Discover, and MasterCard can afford to pay out handsome rewards is partly because of the financially illiterate charging more to their credit cards than they can afford to pay off. [1] I don't have the exact numbers on me, but I think interest versus merchant fees was about a 67%-33% split in terms of credit card company revenue. (American Express is an exception because they do not allow you to carry a balance on a lot of their cards; they will report your account as delinquent and terminate service.)

Otherwise, as other posters have mentioned, credit cards offer fraud protection. Cards aimed at people with good credit scores often come with other nice benefits, such as additional reimbursement if an airline loses your bag.

[1] There are valid reasons to place a huge charge that you can't afford to pay off immediately. Emergencies do happen, for instance, and it's really great to have a line of credit for that situation. But then your credit card serves the same purpose as a traditional loan.

> I actually find this to be a huge moral gray area; the reason that Visa, Discover, and MasterCard can afford to pay out handsome rewards is partly because of the financially illiterate charging more to their credit cards than they can afford to pay off

That's entirely false. The credit card business model (including rewards) does not depend on debt. Rewards are a fee passed from the merchant to the consumer via the credit card.

As you pointed out, American Express doesn't depend on this at all. Most of their best cards aren't even credit cards.

Also, if credit companies love debtors so much that their business depends on it, why do they court people with good credit so aggressively?

> but I think interest versus merchant fees was about a 67%-33% split in terms of credit card company revenue. (American Express is an exception because they do not allow you to carry a balance on a lot of their cards; they will report your account as delinquent and terminate service

That's correct. Depending on the issuer, it tends to be around 70% interest revenue. Pretty much all of their profit comes from this though! Amex does allow you to carry a balance but their ratio is opposite of others 30/70%.

> Amex does allow you to carry a balance but their ratio is opposite of others 30/70%.

Ah yes, you're correct; thanks for reminding me. Their (arguably) more well-known cards (Green, Gold, Platinum, and Black) are actually charge cards. I think you're able to explicitly mark a an item you've purchased as something you'd like to pay for over time, but otherwise you are required to pay in full on those cards. The rest are true credit cards, such as Blue and SPG.

Nitpick: it's better to say "2:1 split" instead of "67%-33% split" to avoid the illusion of excess precision.

Thanks! I'll be more careful in the future.

If you do business travel, and rack up $20k+/month expenses (raises hand), credit cards are invaluable. I certainly don't want to be extending my company $20K. It was impossible for me to have that much money just sitting around when I was in my 20s, particularly if it took a bit of time for the company to pay me back.

From the perspective of a company with hundreds of employees each spending $20k/month - this is effectively a $2mm+ interest free 30 day loan from the credit card company.

Credit Cards take all the fraud risk. If someone fraudulently uses my credit card number, I am not on the hook for any charges. In Canada, at least, the consumer takes the fraud risk for a debit card. (Actually, for Chip+Pin Credit cards, last time I checked, they were trying to get consumers to take the fraud risk as well - not sure if that went through).

Lots of hotels want a credit card, not cash, when you are checking in. Some of then require a credit card, both for reservation, and your stay. I believe that the vast majority of car-rentals require credit cards.

Credit cards in the United States are an effective mechanism for young people to jump start their FICO score, which is important if they ever want to get a loan to purchase a home, (I'm presuming you see the advantage of buying a home with Debt).

Credit Cards, between points and various plans, provide 1-2% cash back on your purchases.

I can load my Credit Card onto my iPhone. I don't know if it's possible to do that with a Debit Card.

Here in Singapore, OCBC will give me an extra 1% on my savings account with their bank (up to $60K - so, $600/year) if I spend $1000/month on my credit card. (And 1% cash back on said card for all expenses.)

With that said - different places have different culture. Here in Singapore, Lots of Taxi's (all of them?) won't take Visa Credit cards, and around half of them won't take any credit cards. Lots of places (all the hawkers that I've run into) are cash only. In West-Coast Canada, Debit-Cards seem to be pretty popular.

But, Net-Net, outside of some of those use cases - I totally agree with you. I don't really see the fascination with credit cards either, particularly now that Visa+Debit cards+Chip+Pin+Smart Phones seem to offer a lot of the advantages of Credit Cards.

> I don't really see the fascination with credit cards either, particularly now that Visa+Debit cards+Chip+Pin+Smart Phones seem to offer a lot of the advantages of Credit Card

What you said before is the key. When your debit card gets compromised your money gets wiped out pretty quickly. Even with limited fraud liability on debit cards, it is still your money that left the bank. With a credit card, you are not on the hook to get that money back -- the bank will put it on the merchant if card was not present or just eat the cost. That to me is the biggest draw of credit cards. Although a normal consumer probably got on to it because of all those rewards and POS discounts.

> I can load my Credit Card onto my iPhone. I don't know if it's possible to do that with a Debit Card.

Assuming you're talking about Wallet (previously Passbook) and Apple Pay, it is possible to do that with a debit card. I use my Simple card with Apple Pay to pay for stuff when I can.

Credit cards are used because they allow for global money transactions in much the same way debit cards do locally in your home country. For example, it's practically impossible to fly into USA, rent a car, and book a hotel for a week unless you have a credit card that has several thousand dollars of credit. Even if you have the very same money on your bank account. The system just works that way.

But credit card debt is way overrated. You basically have to have that money anyway (roughly in a month) so that you can pay off the credit card bill. In the average, you can use a credit card to spend your next salary beforehand but that leaves you with nothing to live on the following month. So what you can do with a credit card is rather limited, as if you do not pay off the debt in one month, you're in for some serious interest rates until the balance comes back close to zero again.

Debt is useful when you invest in something that will produce better yield than the interest on the debt. For example, buying an apartment generally will immediately lower your cost of living (in comparison to rent) and subsequently frees more money to pay back the debt and interest. Thus, taking a mortgage makes sense if you can pay it back in a reasonable time so that the proportion of interest won't accumulate into too high in the grand totals.

Then again, buying a new car with a loan makes no sense whatsoever. The value of the car will only degrade and it might actually degrade faster than the rate you're paying off the debt.

> For example, it's practically impossible to fly into USA, rent a car, and book a hotel for a week unless you have a credit card that has several thousand dollars of credit. Even

I pay for stuff all the time in the US using a debit card. I've never been declined because it's a debit card.

Is it a vis/mastercard debit card being treated as a credit card or just a bank debit card?

> Why would anyone ever want debt? We have money to pay for stuff, why not use your money instead?

I don't carry a balance on my credit card, but I still absolutely love it.

Three main reasons:

1. I don't have to "balance" my checkbook and constantly keep track of how much money is liquid. Instead of tracking my checking account's value before making any purchase, I just do a single monthly payment.

2. Security/protection: A merchant screws with me? I'm covered. Something breaks? I'm covered. I don't like something? I'm covered. Credit cards make purchasing totally risk-free.

3. Rewards. Credit cards have provided me with thousands of dollars worth of free rewards.

The rhetoric around debt is a total red herring and totally orthogonal to the use of credit cards. Many premium credit cards are actually charge cards and don't allow carrying a balance at all.

I have a credit card, but not the american kind of credit card. I have the European kind that gets locked and blocked if it isn't paid off by the end of the billing period (1 month).

Why would you not want a 3,000 euro interest-free one-month loan? Sometimes you have to deal with bulk expenses that you have the money for, but not the liquidity[1]. In that case credit cards become really useful.

[1] In a recent example I had just moved into a new apartment and had to cover a move-in cost, $2000 worth of IKEA furniture, and $3000 worth of next month's rent in the span of two weeks. All in all some $6000 worth of expenses. It all worked out, but it wouldn't have had I not had access to the liquidity magic of a credit card.

> I have a credit card, but not the american kind of credit card. I have the European kind that gets locked and blocked if it isn't paid off by the end of the billing period (1 month).

That's sounds more like a charge card, kinda like an Amex. Your bog standard Visa/Mastercard credit card only locks and blocks if you don't pay the minimum repayment amount at the end of the month which is usually around 2.5% of the outstanding balance. There's nothing particularly "american" about this, it's pretty standard around the world.

I've had both Visa and MasterCard and they both behaved like that - if you didn't pay it off in full every month, it would block.

And everyone I know who isn't American has said the same thing about their credit cards of any kind.

I have several Swedish credit cards (MC&Visa) and none of them work like that - you can just pay a minimum and carry the balance for as long as you can bear the interest. Is there some specific country you're talking about? Banking is definitely not something you can generalize about "Europe" on, there are massive differences.

I have never heard of the behavior you describe. It's definitely not true of any of the credit cards I have from two separate European countries.

It's not an obsession. Debt is a financial tool to extend your purchasing power beyond the money you have or are willing to spend, in exchange for a fee. It's very powerful and can greatly change your life.

Credit cards in USA and other regions came first before banking really caught up in convenience so they stuck around as the easiest thing to use. Bank transfers are starting to make progress now too and many debit cards function just like credit with all the protection but still as a direct transfer of funds.

Like most things, you're free to use or not use it. However, it's also easy to get yourself in trouble if you use it wrong.

I have no idea where you live, but in my home country (Italy) you have been able to pay with ATM cards for more decades, which means no debt and "pay with money you own". Debit cards also work the same way.

I also do not understand the obsession with credit cards, but they have some distinctive advantages:

* are more reliably accepted than other means (i.e. no need to convert when abroad, accepted more often than debit cards or ATM cards)

* allow you to make "variable expenses" (i.e. you rent a car with a credit card where if you crash the car you will have to pay X thousand dollars)

* allow you to make large-ish expenses which are difficult with wire transfers (i.e. by that 4K TV Screen while in the shop)

* some places (e.g. Hungary) don't seem to have cheques at all, so either you go outside with a bunch of cash or some expenses (getting that 27" iMac) are really complicated

* not an advantage but: some places (the US?) seem to have a very ingrained culture of personal debt, while others do not

this doesn't fundamentally answer your question, but as a young person, I've been encouraged to get a credit card to develop good credit, for when I need to utilize it in the future. I would rather use a debit card, but I plan to get a credit card for this reason alone.

I would definitely recommend people get a credit card for this purpose. That said, if you are the type who thinks credit card is 'free money' stay away from it -- you will be trapped in debt forever. If you are generally good with managing your expenses, I would say get a 'bank card' (like Citi, Chase, etc.) and put it on Auto Pay to pay it off in full each month. If your limit on the card is low (say $1,000) then try not to spend more than $300 each month (30% utilization) as it is better for your credit score to keep your utilization low.

You will be bombarded with 0% Balance Transfer offers and stay away from those unless you are knowledgeable about this game. You make one mistake and everything you gained by doing the BT will get wiped away.

Also, if you travel internationally you should either use a card that does not have foreign transaction fees or just use your ATM in that country -- usually banks give you better rates than the card companies; the card companies typically charge 3% fees for each transaction.

> can somebody explain why we have credit cards to me?

You have a VISA/MC card because there is no other way to clear globally. You have a credit card instead of a debit card because the issuer gets higher fees.

The key difference - debit card pulls money out of your bank account. Credit card advances you money on an (initial) interest free loan.

Yes I agree, but what I meant this is a concept which is not exposed to the general public (for most people) in some countries. Your card can also be a one-to-one medium to your account and the credit part is handled by contract if you ask it (or in large shops if you ask it), which means the card is a mix of both.

Poor, and lower class people can't get credit cards.