What if credit cards didn’t exist?  Surely the world would be a better place.  Maybe we wouldn’t have so much debt.  Or maybe we would have more.


Right now, the average interest on a credit card is around 13%.  Without credit card companies, people would go to their local payday lender, or pawn shop.  And they charge 500% interest.


But let’s say we outlawed all of that too.  Let’s say that Obama signed into law the “No More Lending” act, which would make all lending illegal.  If that happened, there would be a black market for credit.  This happened in the 1960s, when the mafia was one of the most popular sources for credit.  The loan sharks would often charge well over 1000%, and people would use their bodies as collateral.  If you didn’t pay your bills, a criminal might come knocking on your door, and bash out a tooth.


Credit cards are a good thing.  It’s like a time machine.  It allows you to borrow money from your future self.  It’s a miracle, when you think about it.


The cost of using this service is interest.  Right now I have three credit cards in my wallet, all competing for my business.  One of my cards has 13% interest, and the other two have 0% interest.  It’s pretty amazing that I can hold a credit card that has 0% interest!  I thought they were supposed to be evil.  Why don’t they just raise their interest through the roof?


The reason is that credit cards are one of the most competitive industries in America today.  If one of my cards tries to screw me over, or offer me a bad deal, I’ll just switch to another card.  Heck, if they don’t talk to me nice on the phone, I’ll switch.  The more credit card companies there are, and the safer we all are.  Competition protects us.


Credit cards require responsibility.  If they are used correctly, they can give you that awesome credit score that lets you get things for cheaper.  When I moved to my apartment, they knocked the rent down $100, because they saw that I had good credit.  They even gave me the first month for free.  If you can pay your bills on time, and keep your credit score in good standing, the world opens up.


But if you don’t, your interest rates can rise, and you can sink deeply into debt.  I missed a payment a few months ago.  It wasn’t my fault — my bank accidentally took $3000 from my account, right when I was supposed to pay my bills.  I got the issue sorted out (got the $3000 back, and quit that bank), but I missed my credit card payment.  As a result, my credit score dropped a bit, but that’s about it.  I still have my 0% interest, and I’m quickly building my score back up to its usual good rating.


But even if I really screwed up, my interest rates would never reach anywhere near 300%, like with the pawn shops.  Or 500% like the payday lenders.  Or 1000% like the illegal lenders.  We should all be rejoicing that we have such low interest rates.  As odd as it seems, the people who are helped most by easy credit, are poor people.  It allows them to pay for things in an emergency, and it gives them flexibility to climb out of debt.  Otherwise, they might go to the mafia in order to buy a loaf of bread, as they did so many years ago.