No Debt Plan

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One of my good buddies, Michael, asked me a question online the other day. He mentioned he really enjoyed the “Only Buy Appreciating Assets on Credit” and “Credit Cards and Depreciating Assets Don’t Mix” posts. To summarize these posts I said a major problem with credit cards is people use them to buy assets that are worth less the day after they buy them, rather than worth more. An example is buying a plasma TV that you pay $1,800 for and 6 months later it is worth $1,200. That’s just silly.

However, he did have a question that will help me clarify the issue.

I loved your appreciating assets post. However, I had a question about using credit cards. If I use my credit card to buy groceries and gasoline, but pay it off at the end of every month, is that okay?

I have long been a proponent of using credit cards to simplify your financial life (one payment vs. several) and to earn cash back (or other rewards) for every day spending.

I did not make that clear in the two posts referenced above.

So, to clarify. When I say don’t buy depreciating assets on credit what I mean is don’t finance depreciating assets on credit. I define financing as carrying the balance on the credit card and paying interest/finance charges for the item. If you pay off your balance at the end of every month — and thus enjoy rewards without penalties — then go for it.