As Martin pointed out, VISA and MC card's debt are held by banks. Despite what you may hear on the news, there are a good many solid banks out there that have not been severely damaged by this crisis and are in really good shape. These tend to be local and large regional banks that that have been run "traditionally" and "conservatively." The folks who were and are doing things right don't get the publicity they deserve. Per Douglas Adams "Don't Panic."

I use my CC all the time, but I treat it the way Amex used to be. Bill paid IN FULL when it comes. Just a way to NOT carry cash/Pay the $1.50 fee for not going to a branch of my bank (none really close to work). They must love/hate me, as they don't make any money from MY side of the transaction

Same with me. Regardless how big it is I pay it off when due. It's just my thing to not have outstanding debt, no deficit spending on my part. The American public needs to get over its obsession with instant gratification. Buy/make do with what you can afford or save up to buy it outright.

Actually, think of it this way--say your bank charges you $1.50 for every time you use another bank's ATM. And say you normally take cash out three times a month, so your bank is losing out on $4.50 a month.

AMEX skims roughly 2-3% off every transaction you make (last that I read). I have no idea how much the issuing bank gets of that, but just for argument's sake, let's just say your bank gets 2.5% of your AMEX charges. At 2.5%, you'd only have to charge $180 worth of goods/services to equal paying $4.50 in ATM fees. Since I charge so much on my CC, my monthly CC bill is far, far larger than $180 every month and I suspect that yours is, too.

OK, so maybe your bank isn't get all of that merchant fee, but some combination of companies other than the merchant is getting that money.

Actually, upon further thought, this is only partly correct. AMEX and Discover do have their own banks (American Express Bank and Discover Bank) so I presume that if I default on a AMEX-only balance or a Discover balance, AMEX or Discover take the hit. But for any Visa, Mastercard, or bank-issued AMEX balance, which make up the lion's share of the credit card universe, it's the issuing bank that carries the consumers' debt, not the credit card company.

It took me a long time to get this point but I now live by it. I think we need to teach our kids that credit is an evil, last resort for all but major purchases such as houses.

It is stupid to use a credit card and then carry a balance from month to month that you are paying interest on. If you use a credit card and then pay the full balance at the end of the month you are smarter, but I invite you to take the next step: Start using a debit/check card only. The check card works exactly the same way as far as the store is concerned and has the same fraud protection, but you will probably find that you spend a little bit more wisely.

On a related note, I understand that the cost to the store of processing a “credit card” signature based transaction is significantly higher that processing a “debit” PIN based transaction. In many stores, the customer is asked to arbitrarily choose whether his check card transaction is treated as a debit card or a credit card and they don’t seem to care which you choose. I can only speculate that their contract with the merchant service prohibits them from expressing a preference for PIN based transactions in the same way it prohibits them from imposing a surcharge on card transactions in an attempt to recoup their fees.

These processing fees are a nice profit center. There are now many credit unions offering checking accounts with up to 6% interest on the first $25k balance if you have one direct deposit and at least ten check card purchases per month.

I put money in the bank every week, and when I have enough, I'll buy myself a new car. Then start putting money away for the next one. Money is also put away for household items, emergencies etc.

OK, I'll use my insider information here -

NEVER EVER EVER EVER use a Debit Card if can use a CREDIT CARD. Just make sure you can PAY IT OFF IN FULL


Why?

1. The consumer protection laws for CREDIT are much much stronger than for DEBIT.

2. DEBIT transactions rarely give you miles, points, cashback, whatever.

3. DEBIT cards can put a FREEZE on your BANK ACCOUNT for HUNDREDS AND HUNDREDS OF DOLLARS if you use them in hotels or for rental cars, as they block out your "potential" charged.

Don't use debit cards except as an ATM card.

Here's when to use credit:

1. If you need equipment to do your job and you will account for the cost of money over time as a decrease in your pay. For example, if you're a mechanic, you need a big tool set, and you might need to go $10,000 in the hole to pay it off. There are any number of Paydown Planners on the web to tell you what those tools will actually cost over time - say $17,000. If you're going to earn $75,000 with your $17,000 tool set, AND you don't take on any other debt, it's worth it. If you can't pay the $17,000 and your other bills without MORE debt, you can't afford it.

2. Performing assets. Homes were, until recently, a performing asset, in that they increase in value more than the rate of inflation and the cost of your money. The crux of the whole thing that's happening now is this isn't working anymore, at least for houses. On the other hand, for education it does work. A college education VASTLY increases your salary, and can be paid off over a LONG time, so it can been seen as a well-performing debt.