Credit Cards: Silver Lining During the RecessionMuslimMatters.org

Credit Cards: Silver Lining During the Recession

12. March, 2009 by ibnabeeomar Finance and Economics 65 comments

While we are all worried about the recession, and many people are facing tough times with downturned businesses and lay-offs, we are still taught to say alḥamdulillāh 'ala kulli hal. One of the positives that I see coming from this crisis is that this recession may perhaps be the wake up call people needed to stop living lives financed by debts they never dreamt of paying (even when they signed up for them).Â

CNN reports,

Just last month, Bank of America CEO Ken Lewis warned … Â that he had no doubts 2009 would be an “awful year” for the credit card industryÂ … Fearing a wave of credit card-related losses, banks have been aggressively setting aside funds to help cushion the blow. One problem, note analysts, is that banks aren't quite sure just how severe the losses will be.

….

Facing additional losses, credit card issuers are doing what they can to insulate themselves from further losses, including lowering credit limits for some cardholders, closing accounts or getting out of the business altogether.

American Express (AXP, Fortune 500) made headlines recently after it offered to pay some of its cardholders $300 if they paid off their balances and closed their accounts by the end of April.

Reuters also gives some eye opening statisticsÂ

Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon, she said.

“Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57 percent contraction in credit-card lines,” she said.

Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool, she said adding that 90 percent of credit-card users revolve a balance at least once a year, and over 45 percent of credit-card users revolve every month.

I have no sympathy whatsoever for these banks that are flopping during this crisis. They made billions upon billions exploiting people, especially the poor and students, turning them into life-long wage slaves [get this DVD if you can]. The problems they are facing pale in comparison to the oppression they inflicted on others.Â

This is a wake up call to everyone (Muslim or not – but especially Muslims) to stop using credit cards. Unfortunately, when someone says that people immediately begin saying things like, “But it's not technically haram if you pay it off at the end of every month.”

Ok. Let's grant that it's not. That doesn't automatically mean it is the wisest and most prudent decision for you to make. Being the person who pays off their balances and avoids riba is the equivalent of the person who drinks wine every day and has never once gotten drunk in his or her life.Â

If the recession doesn't wake you up, I don't know what will. This is a failed system that is founded upon something that is not only haram, but one of the most destructive sins a person can partake in. We often discuss keeping things in perspective and focusing on priorities – thisÂ isÂ one of the top priorities of any Muslim. There are not a lot of other things that can bankrupt you in thisÂ dunya, deprive your sustenance of barakah, force you to provide for your family from haram (even if your actual income was earned through halal), be on par with committing adultery with your MOTHER, and on top of that put you at direct war with Allāh(swt).Â

It is time to do two things,

1. Implement the Islamic financial system in our own lives, and

2. Teach others about it.Â

Implementing it in our lives is easy, but comes with a high degree of difficulty. It is more mental than anything else. It requires making up your mind to not live in debt anymore, and create a plan to pay it down. If you don't have debts, then you have no excuse to hold on to a credit card anymore. Go to the bank, take out some cash, and use it.Â

More importantly, now is the time to present our solution to the rest of the world. Every single corporation in America is suddenly buckling down and being frugal. They are cutting unnecessary travel, cutting extra perks, and trying to work within their means. These are Islamic principles.Â

If we want to show the world Islam can positively solve their problems, let's start getting the message out. The sad thing is, instead of preaching this message to everyone from day one, we ourselves have succumbed to chasing the American dream by digging ourselves into the hole of mortages and monthly payments that we cannot afford. This is not the way the Muslim should live. We must be the beacon of light to others, especially in these times, to show them that no matter how bad things get, inshā'Allāh Allāh (swt) will put barakah in our rizq because we do not live outside our means. We have learned to be content with what we have been blessed with.Â

Instead of showing this example to others though, it is unfortunate that for many Muslims their only hope of freedom from the shackles of debt slavery is a haram life insurance plan that will cash out only after they are 6 feet under the ground.Â

Please see our previous posts on this issue for more details on these issues.

About MuslimMatters

Muslimmatters.org began in 2007 as a collaboration between various Bloggers and Shuyukh in order to bring attention to issues faced by Muslims, especially in the West. We have focused on issues of Religion, Society, Ethics, Sex Education, Politics, Civil Rights, Family, as well as the random issues that pop up from now and then, all with some ranting and humor mixed in.

We challenge ourselves and our readers to engage in discourses that touch our lives as citizens of the West, while maintaining our individual Islamic identities: Ultimately to cooperate, but not to compromise.

B

“Being the person who pays off their balances and avoids riba is the equivalent of the person who drinks wine every day and has never once gotten drunk in his or her life. ”

That’s an outlandish statement …
Hassan

The economy is collapsing because of:

1. Based on riba, which Allah says He would destroy

2. Allah is punishing America for its crimes in Iraq, Afghanistan, Palestine, you name it. Muslims were unable to do anything, but Allah is most powerful, He has hit them where it hurts most. Its time for Americans to repent
http://ibnatalhidayah.blogspot.com Amy

I agree with B on the exact same statement–it’s why I decided to comment. Drinking wine is harasm even if you don’t get ‘drunk.’ the very first drop is. But if spending on a card happens WithOut RIBA, then I don’t understand how it is haram. Maybe you can elaborate on that point, or else it seems your analogy is false.

Sometimes spending on a credit card is the only logical possibility, with sites that don’t accept online payments any other way (I.e., paypal or debit.) I just paid for an Al-Maghrib class that had to be on credit card for instance. And I sometimes prefer to put gas on a credit card so I cal fill up without making two trips inside or more, especially when traveling. There can be some shady people around gas stations.

But hey, if you can prove it’s haram–EVEN if the balance of every expenditure, then that would naturally trump everything else. So, is it?

AbuMusa

Most muslims don’t know that Riba is not just interest, it includes the very money you have in your pocket. The fractional reserve debt based paper money is Riba. period.

So brothers analogy of moderate wine drinking to Riba money is quiet spot on.

Jazakallah

MW_M

I have to agree with B, that’s taking it a bit too far. I think a better analogy would be a person saying that he would drink a glass of wine if such and such did or didn’t happen.
Ibrahim Z Mohammad

Jazaak Allaah khayr for a very beneficial article. I’m sure its going to touch lot of nerves – after all credit cards are part of the American lifestyle which most of us have whole heartedly adopted – but the deen is sincere advice and inshaaAllaah there’ll be many who’ll appreciate such reminders.
http://muslimmatters.org/author/amad/ Amad

Good article and reminder. I think the economy is still strong enough to allow the government to essentially rebubble. If you go back to the 80s and early 90s, you will see remarkably similar episodes (not all at the same time and not all at the intensity of today). I think what has FUNDAMENTALLY changed is the age of communication and instant news. No longer are bank failures in one part of the country “local news”. Bad news at one spot drives confidence level down everywhere, and now globally. Our connectivity is becoming a cause for connected-panic. When people panic collectively, and confidence goes to the amazingly low levels, then people stop spending (not just on CCs, but spending completely). And then the engine of the economy starts ceasing up. Macroeconomically speaking, this new age of internet is what makes the situation so different now.

I think the credit-card crises is not as significant now as it will get… there is a belief that this will be the next major “shock”. How long can people just pay minimum balances or transfer balances to avoid default? If employment doesn’t turn around, then defaults will as common as foreclosures, which is scary to say the least!

Being the person who pays off their balances and avoids riba is the equivalent of the person who drinks wine every day and has never once gotten drunk in his or her life.

I think this statement is exaggerated, from an Islamic perspective, right? I know you are trying to use hyperbole to make a point, but if you said something like it is equivalent of a person who opens up a can of beer ready to drink it everyday, will eventually drink it… I think that would be a bit more appropriate. Because even though I agree that just being on the hook for interest (signing the contract) is pretty bad, it can’t be equivalent to drinking wine.

Hassan: I think riba is definitely a problem, and until the economy can support bubbles, I don’t see a big change coming. Eventually, it will hurt. As for punishment, only Allah knows. No doubt injustice is being seen by Allah, but I don’t think we can make such definitive connections. wallahualam.

P.S. I just pulled out a couple of comments from spam related to the same wine comment… so if I had seen them earlier, I wouldn’t need to add my bit.
Uncle Tom

Being the person who pays off their balances and avoids riba is the equivalent of the person who drinks wine every day and has never once gotten drunk in his or her life.

This may seem outlandish…but it is true to some extent.

The reason a Credit Card is Haraam is because you sign a contract agreeing to “Pay interest in the case of not meeting minimum monthly payment”. It does not matter if you pay it off monthly without actually accumulating interest. The contract is what makes it Haraam.

It’s very easy to say that the conventional financial system sucks and Islamic Finance is better. However, Islamic Finance is basically offering conventional products taking out the haraam aspects from it. We need to design some new models and products, instead of modifying existing one’s.
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

many of these arguments were covered previously:
http://muslimmatters.org/2008/01/16/muslims-guide-to-debt-and-money-management-part-4/

but anyway, i think people’s reactions to this indicates one predominant attitude – we are TOO LAZY TO CHANGE.

we have become accustomed to a riba based lifestyle where we finance our entire lives on temporary debts. whether its halal or haram is almost a side issue at this point (especially in light of the recession). its simply not a good idea to have them.

regarding the wine analogy, i hold by it 100%. you are playing with fire. over 90% of americans are carrying a revolving balance on their card at least once a year. if you don’t think ‘muslim americans’ are included in that category then you are simply living in a bubble. and it doesnt have to even be a revolving balance. i myself have been hit with riba even when paying off the balance at the end of the month. you know how? i paid online and the cash didnt clear through my bank until 24 hours after the payment deadline. yes, its a slip. its a mistake. but when you play with fire, that’s what happens.

so yes, it is like saying you’re going to drink a glass of wine every day and not get drunk. you’re playing with riba every day without actually trying to get into riba.

we need to get out of this mentality of trying to justify using them, and instead realize that their harms are DESTRUCTIVE, and encourage people to start living their lives without them.

alternatives to credit cards were also discussed in the previous series (see the “previous posts” link at the end of the article) but it suffices that you can use a debit card for online purchases. alhamdulillah i havent used a credit card for anything in at least over a year and that includes travelling [flying and driving] and an above-average amount of online purchases.

*look into getting a visa debit card. they can be swiped as “credit” as far as the merchant is concerned, but it comes directly out of your account.

when there is a will there is a way. muslims simply often lack the will and mask it with these debates while happily continuing on partaking in a riba system daily.

http://muslimmatters.org/author/amad/ Amad

so yes, it is like saying you’re going to drink a glass of wine every day and not get drunk.

yes, “going to drink” is a better analogy. “And not get drunk” would be better served by “and not actually drink”. And, yes you are still playing with fire.

A constant act of sinning is not the same as the potential of sinning and also not the same as the one-time possible sin of the contract-signature.

Regardless, I agree that there is no excuse for a credit card. I have had no credit card for the last 15 years I think.. the check-card takes care of all the credit-card needs, and my Amex takes care of the rest (no interest contract or terms of interest).

http://www.mujahideenryder.net MR

Use a “Check card” :-D It’s like a credit card but it takes the money ASAP straight from your account.
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

one more point on the drinking analogy:
i’m not trying to make it a shar’i comparison – ie the act of using a CC is the shar’i equivalent of drinking a glass of wine.

rather – my point is that a person thinking they can use a CC day to day, responsibly, and never be hit with a late fee, missed payment, revolving balance is as naive as a person who drinks “responsibly” 100% of the time. i hope that clarifies it a bit :)

http://muslimmatters.org/author/amad/ Amad

yes that does clarify more than a bit… without the fiqhi POV, it’s a solid analogy.

Zahid

Salaams

Jzk Khair for the reminder.

Just a note though: you said that riba was like committing adultery with your mother. This is clearly a repugnant thought and actually incorrectly held by many Muslims to be the case because of a “hadith” of the Prophet. It isn’t.

Sh Abu Eesa wrote about the hadith on this issue all being weak. It’s an excellent piece and well worth a read for you especially.

The Use of Certain Weak Hadīth in Promoting a Ribā-Free Society
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

rami – im curious as to what kind of debit card it was? as far as i know visa debit cards offer the same protection that they do to credit cards.

in any case, there’s always creative ways around it for online purchasing if one wants to avoid using a credit card:
1) paypal
2) go purchase a visa gift card and preload it with the needed amount of money
3) go to the store with cash :)
MUA

A couple points:

Uncle Tom: we should be very careful in stating a certain transaction is haram or not. We must first have a good working knowledge of the ahkam regarding contracts. In terms of trasactions generally speaking scholars (specially ahnaf) divided them into three categories, Sahih, Batil, and Fasid. A batil contract is haraam, but a fasid contract is not necessarily so. Without going in much detail, the language of the contract on any credit card does contain elements violating ahkam sharii’ya but since it doesn’t necessarily affect the overall transaction (e.g. one can pay in full and on-time) the transaction may be just fine. In this case many scholars have considered the contract of credit cards to be fasid not batil. Again a fasid contract has some issues with it, but we cannot say that it is haram. Again, this does not do justice to the subject, but realize fiqh of contracts is huge body of law and has a lot of literature devoted to it. Let’s seek knowledge before passing fatawa.

IbnabeeOmar: As far as changing our lifestyle, this is fine if you’re lifestyle is not financially disciplined. But what if your lifestyle is one of fiscal responsibility, and not getting into direct riba is at the forefront of your mind? I know several bros. who operate like this. So let’s not assume that those who are disagreeing with your comment are doing so 1) because they have a lifestyle of fiscal and sharii carelessness, 2) and that they are too lazy to change. Secondly, if you think that credit cards are part of a riba system (which undoubtedly they are), realize that if you have your money in even a non-interest bearing checking account, that bank is also part of the riba system, and moreover, your money in the bank is being borrowed to in fact work in that system. These banks don’t just let your money sit there, they invest it. So let us please be consistent in our reasoning. We need to search for more depthful solutions, and acknowledge we are all in this mess together and it is primarily due to the fact that Islamic law receded from governing the public domain to devise economic models and systems that incoporate ahkam shariyyah, and because the ummah receded in this manner, naturally an economic system that would not yield to what Allah and his Messenger want from us enveloped us all, and we’ve been at a point in history where we may even stay away from riba directly, but it touches us indirectly. The hadith of the Prophet asws has come true: “There will certainly come a time for manking when everyone will take riba and if he does not do so, its dust will reach him” (Abu Dawud, Ibn Majah). Our time is really better spend understanding the current economic system (which quite frankly we understand bits and pieces), and studying and devising how to bring back an economic system that is relevant to our condition, can create wealth and satisfy the needs of all people, and most importantly issues from a complete commitment and adherence to ahkam sharriyyah. These are very complex issues, but this is what we need to invest our resources, talents, and money in.
LearningArabic

I have used a Visa Credit card for the past 5 years and alhamdulillah, I’ve avoided interest. That being said, I have had my share of close calls and so I can definitely understand the author’s POV.

@ Br. Amad,

I would appreciate it if you could provide more info on the AMEX card. Does it work just like a credit card without the interest contract? If so, then how do they make a profit and what do they do if people don’t pay on time? What would happen to me if I forgot to pay my balance at the end of the month?

Jazakallahukhair for the articles and comments. I think it would be really helpful if MM wrote a follow up article discussing alternative methods to credit cards (in more detail). Most people, myself included, are extremely dependent on credit cards and it would be quite difficult to leave without viable alternatives.

http://muslimmatters.org/author/amad/ Amad

Amex does not have an interest-based contract for their “charge” card… they also have credit cards available, so make sure that you get the charge card.

How they make money? Actually, the way most CC make money is not just because of interest but because there is a fee associated with the transaction. So, when you use your MC/Visa/Amex, anywhere from 1-3% of the transaction price goes as fees to the CC company. Amex has the highest fees usually, closer to 3%. That is why some vendors won’t accept it (about 20%). Thus, if you spend $1000 a month on Amex, the company is making about $30/month off you.

Also, since Amex doesn’t have interest, it supplements the merchant fees by charging an annual fee, ranging from $55 to $150. Many times, this is waived for the first year, and if you make enough noise, they might waive it in future years too. Some of the neat free features you get is that they have several protections on purchases, as well as protecting you in disputes better than any other credit card (I disputed on my VISA chk card only once and they sided with merchant, vs. several times with Amex and won every time). They are known to be more customer-friendly than merchant-friendly. Again, another reason some merchants don’t like Amex.

Finally, what if you don’t pay or you are late? I think if you don’t pay for a couple of months beyond your due date, then you will get penalties charged. And these are fixed penalties, not based on percent of your charges. It is fair for a company to charge out-of-pocket costs for collection purposes; now whether they are exact on this or not, I can’t be sure, but it is not unreasonable. In over a decade using Amex, I have never had a late-fee, and I have paid late a few times. What happens with late payment is that you don’t get points for your dollars (used for miles, etc.), so that is a discouragement against late-fees. Oh, the points are great by the way…one of the best in the industry.

I have seen a few of the Shayookh use Amex, and I have yet to hear anyone make a legitimate case (or any case at all as far as I remember) that it is forbidden.

So, between an Amex and a Check-card, you are covered. And that is why, Sr. Amy, there is no reason to take a risk, when there are legitimate and sufficient resources and alternatives available. This is coming from a person (me) who almost never carries cash.

P.S. Important: I do NOT work for Amex, just in case you are wondering :)

http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

MUA – i agree about keeping your money in the bank 100% – but we do whatever we can inshallah, and i think avoiding credit cards is a good SOLID step in the right direction.

amad – can you give more details about the next ‘shock’, ive been wondering myself about that. what happens if everyone starts defaulting on a mass scale?
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

learningarabic – the previous articles touched upon it. check out the debt/finance series (linked to at the end of the original article).

but basically you have cash, and debit cards.
Rami

Asalaam Aleikum Warahmatullah Wabarakatu,

Omar, one questions regarding the use of debit cards only: they don’t offer certain consumer protections that credit cards do, such as fraud protection and the bank will not argue/cancel purchases from vendors on your behalf. I know someone who had a big issue with this a while back with her debit card, and still hasn’t gotten her money back from either Fedex or Buy.com when she purchased an mp3 player which never showed up. Since with a credit card, the bank pays the vendor after a certain amount of time, they can freeze the purchase in case of fraud or faulty vending, and reimburse you the amount.

Although, sadly I see all the comments including my own revolving around the one line in your article and ignoring the rest. The article is beautiful, and seriously Muslims and Americans in general need to stop thinking that credit is free money. Paying 25% interest is absolutely insane, forget about haram; the fact that it will take 30-40 years or so to pay off any amount with by minimum balance only is unbelievable. The prior series which you ran on MM on debt was very good as well and I think everyone should read it.

http://muslimmatters.org/author/amad/ Amad

Rami: U’re right about the risks of debit, or even check cards. That’s why I always use amex for transactions unless they don’t accept it. Amex protects customers better than any card on the market. It has a yearly fee for using the convenience, but its worth it in my opinion…

sadly I see all the comments including my own revolving around the one line in your article

it’s kind of a trend on MM :) readers keep authors on their toes all the time!

http://fatwa-online.com/fataawa/buyingandselling/buying/buy002/0020602.htm Abû Mûsâ Al-Ḥabashî

The analogy I use with people when explaining why I don’t use a credit card or take it out student loans has to do with the contract: Signing a contract where you promise to add interest if you’re ever late in your payments is equivalent to promising you’ll commit zina with your mother if you’re late in your payments.

P.S. I’ve read Abu Eesa’s blog entry before but within the comments there are people who themselves have familiarity with the ḥadîth sciences who heavily dispute his analysis – therefore I still consider the ḥadîth acceptable and use this analogy.
http://ibnatalhidayah.blogspot.com Amy

If I could see that actually using a credit card, while paying off the balance before interest was charged was haraam, then I would see the equivalence.

But as yet that’s not been shown. It is more convenient to use a card sometimes, obviously, but I would hate for someone to say that we (collectively as Muslims, and even me personally) are lazy just because we refuse to change, without actually being shown that a certain behavior is haraam.

If I could understand why you’re making that claim, then obviously convenience would take a backseat to Shari’ah. I know that most of the time there is an alternative to using a credit card, but if it is actually haraam to use a credit card, that should be made clear, and I for one wouldn’t object to sticking by that opinion.

If there’s proof.

Otherwise it’s just saying credit cards are bad and risky–and that much, while kind of obvious I guess, can always be reiterated.
N

^ I understood the analogy as it’s almost impossible to not fall into riba..

Kind of like a drunk person driving, thinking he won’t get into a car accident.
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

amy – 90% of people who use a credit card fall into interest. i dont know what else to say. you might be responsible with your use of it – but that’s my point. that is about as common as a person who drinks responsibly 100% of the time.

whether credit cards themselves are haram or not is really irrelevant. their use is a DIRECT and MAJOR cause of people falling into interest-bearing debts. a simple mistake of being late with a payment (even if in full) DIRECTLY results in you paying interest.

Being at war with Allah (swt) over this sin far outweighs any of the “convenience” factor that they hold.

also i have given some fiqh opinions about credit cards from the scholars in the previous articles, so i dont want to rehash that here. but i dont think anyone can disagree that as a practicing muslim its better not to sign off on an interest-laden contract if you don’t have to.
MUA

I’m sorry ibnabeeomar, your reasoning is fundamentally flawed. Amy’s point is on mark. No one on the forum has suggested that credit cards are risky. That is agreed. The problem is you keep using that ridiculous analogy to drinking – which is ostensibly haram even in minutae, and then say the issue of credit cards being haram or not is irrelevant. Aki al-kareem, you cannot have it both ways. Your responses are replete with references to fiqh (e.g. it’s better not to sign off on an interest-laden contract; being at war with Allah). And you know there’s no such concept as “drinking responsibly” in Islam because it is haram outright, so why then are you trying to liken it to using credit cards responsibly [unless you truly believe that using credit cards are haram]?

Btw, even if you are late on a payment once in a while, all you have to do is call the company, and let them know you’re a good customer who usually pays their amount on-time, in-full, and they’ll usually waive it (finance charge and late fee). In fact companies have policies on this, in the industry they usually give this waiver twice a year, it differs slightly from one company to another.

The benefits of using a credit card responsibly is not just its convenience, but also its security, talk to a person who has lost a lot of money because a wallet or purse was stolen. If that happens with a credit card it’s not a problem. Sis. Amy is right, convenience and utility of preventing harm takes a back seat to nass (text) of Shariah, but if you can’t prove it’s haram to begin with, then these benefits need to be considered along with the risks.
LearningArabic

Jazakallahu Khair for the links ibnabeeomar.

I had one more question::

How would you go about renting a car or checking into a hotel room? Usually, they ask for a credit card in these situations before letting you rent or check-in. Are there ways that you have discovered to get around these situations?

Please share :)
Atif

I think we need one of our MM Shaykhs to comment on using Credit Cards , as I saw him using one :)

I’ll give you a hint on who it is: the card was an Amazon credit card.
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

learning arabic – i have used my debit card for hotels a few times without any issues.

i haven’t rented a car in a while so i can’t answer 100%, but i have heard people saying they used debit cards, and also some saying they couldn’t. thats about the only scenario i know like that though. but i have used debit card for both airline + hotel (both reservation, and at check-in for incidentals) multiple times.
Atif

I believe for car rentals, you can show them utility bills
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

atif – i really don’t want this to be a halal/haram discussion. anyone who gives it even a cursory look at fatwa websites will see the varying opinions from:
Haram because of the contract to Halal if you know you can pay it off.

I really don’t want to focus on the halal or haram of it. My main point is that regardless of its technical status in shari’ah, credit cards are NOT a good option because 9 times out of 10 (literally) a person will become involved in riba at some point whether intentionally or unintentionally. Moreover, the basic Islamic principles teach us to live without debts. When a person spirals into using credit cards for everything, then it begins to spiral out and many people lose control. That’s why the average american household carries roughly 5-8k constantly in credit card debts. i personally know of practicing muslims who have held anywhere from 1k to 20k+ in CC debts – and believe me not a single one of them was doing it on purpose, rather all started out with “i pay it off at the end of the month”

just because something is technically halal doesn’t mean we need to justify it tooth and nail. staying away from credit cards is not only more islamically sound, but fiscally as well.

i feel that if i posted a warren buffet article about how the first step to prosperity is cutting up your credit cards, more people would be amazed and try to implement it as opposed to trying to sell finance-free living as islamic :)
Atif

Omar: I didn’t intend to make it a halal/haram discussion, and I do agree with you for the most part.
My question is, is it really impossible to use credit cards without spiraling into using it irresponsibly?

Also, how would you respond to those who justify using credit cards (for small recurring purchases, like phone, utilities, for example) for earning free flights, points, etc.? (btw, is that aspect halaal? earning points?)
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

atif – go back and read the debt/finance series posted before :)
and also read dave ramsey’s total money makeover :)

as for recurring purchases, i have set up automatic payments through the online checking at my bank.

http://muslimmatters.org/author/amad/ Amad

I would say though that I agree with a few here that just a debit card is not entirely practical. Even just a check-card is not what I could recommend. Especially with the many unscrupulous merchants, not to mention online shopping, I could not afford to have my checking account wiped out and then wait for the dispute to resolve and get my money back. So, I think there has to be an alternative where there is a 3rd party in the middle. Paypal is good, but they don’t provide sufficient protection and my experience with them is that they are much more merchant-friendly, and very hard to deal with. If there wasn’t an Amex, I’d have to think hard about my options :)

http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

atif: My question is, is it really impossible to use credit cards without spiraling into using it irresponsibly?

did you totally skip the wine discussion? :)
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

amad – thats why you just use good ole cash whenever possible. in the past couple of months i have even stopped using my debit card for gas, i even pay gas with cash now despite the extra inconvenience.

the ONLY time i have swiped my debit card lately is if its an online purchase and i cant use paypal. for bills and other things i use online checking. but its a good idea to limit your online shopping to major retailers (amazon etc) so you don’t have to deal with unscrupulous merchants (i wouldnt buy from there even with a ‘protected’ credit card).

also i have had an experience with an unscrupulous merchant charging 1500 on my credit card (a shady moving company that ripped me off). i actually filed a dispute through my CC company and won. The charge was taken off my card. Then after a few months, the company somehow refiled it and got the charge back on. i contacted visa and they said there was nothing i could do. so at this point i had to

a) pay out of pocket for an attorney, try to sue, and hope i win my money back
or
b) foot the bill and possibly pay interest if i was not in the position to absorb an unexpected $1500 expense.

at some point we have to just ask Allah (swt) to guide us to doing these things in the way most pleasing to Him and have tawakkul that our transactions will have barakah and we dont have to deal with situations like that :)
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

visa’s protection on its debit cards:
http://usa.visa.com/personal/cards/debit/index.html
Atif

Omar: Yes, I did skip that discussion. :) will do, inshaAllah.
http://www.muslimbestlife.com/blog Siraaj Muhammad

Amy and the rest – the fundamental question to ask is very simple – do I want to involve myself in a transaction in which the consequence of failure, even a 1% possibility, results in:

1. Going to war with Allah and His Messenger.
2. Potentially fornicating with mom in front of the ka’bah (depending on if you accept this narration or not).

Myself, no thanks. It’s like saying, “Sure, I’m good with balancing myself, and I’m not afraid of heights, so I have no problem walking on the ledge of a skyscraper if you’ll pay me $5.”

You’re taking a huge risk for such miniscule benefits. Get a debit card, and you can have the strengths of a credit card and carrying cash without the weaknesses of either.

As for ensuring purchases and catching fraud, mine is with Chase Bank and they’re always looking for and catching fraudulent transactions.

Siraaj
http://whatstheplot.com zeratul

i use my debit card 99% of the time in most b&m store, but for 1% of b&m purchases, for online purchases, and for international travel, i use a credit card.

i think there are ways to use a credit card “more responsibly” as a muslim (for those, like myself, who will still use the card) – not just by paying the balance off at the end of each month.

for example, is let’s say you purchase a book on amazon using a credit card. as you know, you are not billed for it until it actually ships, and the payment isn’t due for up to 2 months.

so instead of waiting until you get a bill to pay it, right when the purchase is complete, you could pay for it immediately, before it’s even shipped or passes as a valid transaction on the card. you won’t get credit card bills as a result because you will have online bill pay their credit card several times a month (following any expenses made). doing this, you won’t have to pay when a bill comes because it’s always on a zero balance before the bill arrives.

this way, there’s no 10% risk of riba because the moment you use the card, you pay it off the same day and don’t wait for chance that something may happen. if one were to get laid off the next day and get all their money taken away by the government, etc – they would still have no debts, because all of their cards would be paid.

no one will argue that riba is a huge risk and very dangerous (and haram contract as you pointed out) – but if you take the right steps, you can minimize it. maybe this is not good enough and one needs to pay the credit card first and then charge the item later – one could do that as well.

using this method, the risk is tantamount to that of using a debit card or check card or whatever. you won’t have any problems unless some emergency happens and you have no money in your account when the charge goes through. using this method, however, you are safer than with a debit card because the debit will bounce and you’ll be charged, whereas with credit card, you’ll have 7 weeks to get the money to pay it (or to return the item or cancel the service or whatever it is).

regarding the small benefits of a credit card versus a debit card, i think that “peace of mind” is a huge benefit – knowing that if any fraud happens, you can get your money back. building credit, getting points, etc are smaller benefits. i mainly do it for peace of mind, because i don’t trust using my debit card online or while traveling internationally, etc.

wa Allahu a3lam.
AsimG

I have been sooo close to paying interest its not even funny, but alhamdillah I have been saved everytime.

Credit cards are a really really bad thing if you can’t control yourself and insha’Allah I will get away from it soon,

Question: does anyone know if we can use the frequent flyer miles from our cards and other gifts from using their service?
(each credit card purchase charges a service fee to the restaurant/gas sation)
MUA

Siraj, your argument like Ibnabeeomar, doesn’t pan out. If you want to talk about risk vs. benefit, you also need to break down your risk. There are always two components to risk: 1) probability; 2) impact. What you’re talking about is impact. No one is doubting riba is haram and was stressed time and time again in the Quran (whether the specific hadith about intercourse with your mom is truly authentic or not, the hukm still stands). But again, if you have a lifestyle that is fiscally responsible, and you use your credit cards responsibly, then your probability is nil, and if the probability of risk is viritually zero the impact will not come to fruition. Also, even if there is a slight probability of not paying off the balance on-time, there is recourse to ensure for those who have a track record and lifestyle of being responsible that no interest will be accrued.

But again, we Muslims get caught up in spending a disproportionate amount of time on issues of how i can carve out a halal living inside an abyss of haram, and not nearly putting more of our intellectual capital and capacity to use on how we may be able to create a new paradigm and worldview that does not force us to halalize a sytem that is through and through not based on wahi. Again, realize our problem is much bigger than credit cards, even having a checkings account as i mentioned before is problematic since it is saturated with riba. I just think we shouldn’t have a false sense of security in condemning credit cards and promoting debit cards. We’re barking up the wrong tree.
Faiez

Check cards zindabaad
AsimG

I can see Daniel Pipes at it now “Major Muslim Blog says Credit Cards are unlawful and calls for Shari’ah”

And Irshad Manji responds, see this is what happens when you don’t make ijtihad.
http://muslimbestlife.com/blog Siraaj

LOL@’Asim

But again, if you have a lifestyle that is fiscally responsible, and you use your credit cards responsibly, then your probability is nil, and if the probability of risk is viritually zero the impact will not come to fruition. Also, even if there is a slight probability of not paying off the balance on-time, there is recourse to ensure for those who have a track record and lifestyle of being responsible that no interest will be accrued.

There’s no such thing as probability nil for a human being making a mistake on any matter. The more fiscally responsible, yes, the closer to nil, but never nil. Going back to my analogy, a construction worker who is not afraid of heights and walks steel eye beams for a living has a far less chance of falling than the average joe, but fall he can, the same as a skilled swimmer can drown, despite their skill.

As for your second point, yes, it is possible to call up and work it out, but it is also possible that it doesn’t work out, and I have seen that happen to “fiscally responsible” brothers who normally paid off their balance on time, so your “fallback plan”, ironically enough, has a risk of failing as well.

So I return to my original statement – will you risk even the most remote of possibilities of waging war with Allah for the convenience of renting a car or safeguarding your Amazon.com purchases? My point is, I choose no, and others can differ with that, it’s up to them how they live their lives or how they even perceive the problem.

Siraaj
Sirat

Assalamu Alaykum,

I didn’t take Tawfiq Chaudry’s Fiqh of Business Transactions class in toronto, but a friend of mine who took the class said that he mentioned credit cards were haram even if you intended to pay off on time, because, by using credit cards, you are entering into a contract which stipulates that you have to pay interest if you don’t pay on time.

Signing that riba-based contract is sinful, even if you end up paying the balance within the one month timeframe.

- Sirat
ALGEBRA

@AMAD
“Amex does not have an interest-based contract for their “charge” card… they also have credit cards available, so make sure that you get the charge card.”
Aslamu-alaikum:
Everything you said in the above comment is so true. I have had my amex card for about 19 years MashAllah, and they are definately customer friendly than merchant friendly and their customer service is EXCELLLENT………. I would rather pay the 150.00 yearly fee and get an astounding customer service plus the MILES. I love the miles mashAllah. Definately, the best in the industry. SPG is also very good in miles.
One can use them on any airline and for each 20,000 you get 25000 when transferred.
salam
Al-Madrasi

Here is the related CNN Video:

http://www.cnn.com/video/#/video/business/2009/03/12/pkg.snow.credit.next.cnn?iref=videosearch
http://ibnatalhidayah.blogspot.com Amy

Siraaj, I really liked the way you phrased your question. Of course I don’t want to go to war with Allah and his Messenger. (Seriously, just the thought of that brings tears to my eyes even the dozenth time I’ve heard it.)

If it’s just because paying for something on credit is risky that it’s dangerous (because it comes close to going to war with Allah and His Messenger) then obviously it’s not something I’m going to try to do if there are alternatives. Actually this whole discussion is motivating me to get a debit card anyway, as I don’t have one, and it can potentially solve any problem there could be with using credit cards for me. (I for one don’t make purchases on it unless I know I have at that moment enough money in my checking account to pay it off immediately–and I do pay it off at first opportunity most of the time.) If purchasing on credit, assuming that I did have the money and was fully intending to pay the balance before interest were charged, was still haraam (and I think it is important to know if something is clearly haraam or not–the wishy-washiness about this topic is immensely frustrating) then I might cut up my credit card right now. And I don’t see that proof. But I also don’t want to stand here and argue that credit cards are good or anything like that, because it’s much more clear that they are very dangerous.

Alhamdulillah, at least this discussion is pushing me towards getting a debit card anyway, though, and maybe then I won’t have to worry about falling into haraam by using the credit card for whatever reason.
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

Amy – i agree with you about the halal/haram aspect of it. i really tried hard to research this before, and there’s a number of fatwas from reputable sources saying that technically its halal. however, there is also a strong opinion that the contract itself is haram due to the interest stipulation.

personally, i feel its best to avoid that if at all possible since the view that they’re haram is a legitimate scholarly opinion. however, i don’t think it’s ever going to get a clear cut answer because almost every single contract you sign in america has some type of a haram clause in it (i have even found some in my apartment lease contract).

in any case, if it can be avoided, i dont think anyone disagrees that its better to. the point i wanted to further emphasize in this post though, is that aside from the “riskiness” in terms of halal/haram, there is a high level of risk associated with it fiscally as well. most people aren’t that responsible, and even if they try to, they can still slip.

the thing with CC’s is that a temptation always exists. we’re told to keep our gaze down to prevent the ultimate sin of adultery. CC’s for many people are tempting as well to spend more, to purchase things and defer payments, or to use them as a bandaid to get out of a hole. every one of these small slips is a step into riba, and once the cycle starts its hard for many people to get out of it.

id really recommend getting the documentary i referred to – maxed out. its an eye opener about the entire system of CCs.

lastly, if you are just paying your card off immediately after each purchase, a debit card is the way to go as it will automate the process and save you the extra hassle :)
Anon

I took The Real Deal Fiqh of Business transactions course with Shaykh Tawfique not too long ago in Toronto and we learned that any business contract that contains a haram condition/clause is a haram contract so therefore CREDITS ARE HARAM. BUT using other fiqh principles in cases where it is a recurring need its use would be made permissible. He gave us the example that he travels by plane over 100 times in a year and without a credit card it just isn’t possible to book his flights ahead of time.

Thus the bottom line is you should avoid credit cards as much as possible and only in cases where you have no other choice then use it and pay it off asap (you can have it attached to your bank account and pay it online right away, which is what I do.) Its a difficult situation though so just try to avoid using it as much as you can and pay it off as soon as you can when you do.
talwar

Don’t you guys in the US have a VISA Debit Card? It’s used exactly like a credit card except that it deducts from your bank account.
anon

I am not perfect so probably shouldn’t comment on this. But my family fell on difficult times and resorted to credit cards. I regret so much,you are literally in bondage to them. You make choices you would not have if you just use cash.

Its very funny to me that I learned about the dangers of credit cards from a Christian radio show. He is a Christian and completely adamant about not using credit cards because he knows you are playing with fire. Yet with Muslims I never got that advice, always, well if you are responsible you can use it. Its just funny to me that a Christian is more strict about this than Muslims. When if comes to our money, Muslims love to make excuses, myself included.
abu Rumay-s.a.

Dear Ibnabeomar:

you mentioned,

It is time to do two things,

1. Implement the Islamic financial system in our own lives, and

2. Teach others about it.

You make good points and these are fairly simple things that most people can do with exerting some effort, although for the second part, there needs to be some intensive learning before the teaching and I have not seen too many mediums focusing in the teaching of this important topic..(suggest any?)

I recently ran into a good intro by Mufti Taqi Usmani..
http://www.darululoomkhi.edu.pk/fiqh/islamicfinance/musharakah.html

Then you said:

This is a failed system

I think everyone now has good reason to believe what you contest here, but for the average person like me who is not an economist is trying to understand why it failed and how it was developed, how is it maintained, and what drives it, and where will it end up. Can you recommend some reads, videos, articles, documentaries, etc….on the issue..

i’ve seen some of the documentaries on youtube and read reviews about the book “the creature from jekyll island”…but i think the issue is a bit deeper than just hedge funds mismanagement and sub prime mortageges, and banks loaning money they don’t have..

my point is that the more people understand about the system, the more they will know how the current economy is really driven and who really reaps the $$, the more they can decide to look for alternative systems of economy…

i’d recommend if time permits you to write a few articles on this important issue…
Hassan

http://www.lewrockwell.com/schiff/schiff7.html
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

abu rumay.s.a. – check all the posts here:
http://muslimmatters.org/category/islam/finance/

as well as the documentary maxed out – http://tr.im/hmS8

also in terms of it being a failed system its as simple as the fact its based on riba :)

you can also check out the daily show (hulu.com) for all the episodes this past week. they show his battle with jim cramer, but it highlights how easily these guys can shape the market and affect your own investments – ie by profiting off your losses.

lastly, id recommend getting dave ramsey’s total money makeover – http://tr.im/hmSs – most important book on the issue.

the reason i recommend all of these is they are the most *practical* resources to understanding the system in terms of how it directly affects you. and how the decision to take a credit card, car payment, student loan, mortgage, etc. the ramsey book especially goes into a lot of detail on how to practically do everything you need – in this society – WITHOUT interest or debt. he also goes into detail about why the conventional assumptions about buying things on payment or credit cards will actually ruin your life. the maxed out documentary i linked to shows how this is not by accident, but design, they need people to become wage slaves to stuff their pockets.

may Allah(swt) guide him to islam, and may He give us muslims who are able to tackle these issues and produce such works.
http://www.halalbucks.com/2009/03/10/is-it-worth-it-to-muddle-in-haram/ ibn Halal

The halal economy will prevail, in-sha-Allah for sure.

More and more Muslims and non-Muslims are realizing the evil consequence of Riba and the deception of terminologies like “interests” and “credits”

May Allah save us and grant us halal Rizq
http://muslimmatters.org/author/amad/ Amad

Credit card crisis
http://www.huffingtonpost.com/arianna-huffington/the-credit-card-debt-cris_b_169657.html
http://www.thepittsburghchannel.com/money/17877297/detail.html
http://www.mediachannel.org/wordpress/2008/10/29/house-of-cards/
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

interesting quotes from the articles linked there-

“The key for the banks,” Manning says, “is to get them dependent upon consumer credit, shape their attitudes towards savings, consumption and debt and to then multiply the number of financial products that they’re buying from that particular bank so the credit card will lead to the student loan, to the car loan, eventually to a home mortgage and then maybe some insurance products and investment opportunity.

The banks, he says, want students in a condition of dependency. “Young people today that see credit as a social entitlement have no understanding of what it is going to entail to repay those loans back. Once they’re used to living on borrowed money, then the banks realize that they’ll be following that pattern possibly for the rest of their lives. By the time they graduate they’re so indebted, and they’re so dependent upon the use of credit and debt, that it’s already presaged their future. They can’t possibly pursue the kinds of careers that they anticipated.”

and wow-

Sen. Chris Dodd, chairman of the Senate Banking Committee, accuses the banks of “gouging,” saying, “the list of questionable actions credit card companies are engaged in is lengthy and disturbing.”

Perhaps he should send the bankers a Bible bookmarked to Deuteronomy 23:19: “thou shalt not lend upon usury to thy brother.” Indeed, Sen. Bernie Sanders told me last week that he is working on “anti-usury” legislation.
http://musafirfidunya.wordpress.com ibnkhalil

Assalam o alaykum. I found this interesting. The Christians are seeing the evils of the credit card and how the system manipulates them so they are now preaching to get rid of them. This was CNN frontpage news. http://www.cnn.com/2009/US/03/15/money.missionary/index.html
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

ibnkhalil – dave ramsey has been at this for quite some time. his total money makeover has become a missionary effort in countless churches across the country. you have no idea how much it makes me cringe that we do not have a muslim equivalent of this. they are so hardcore that you cannot even register for their classes using a credit card – debit card or checks only!
ALGEBRA

@ibneeomar

we don’t need to be hardcore with anything like the Christians. Lets try to be “balanced”
salam
http://muslimmatters.org/author/ibnabeeomar/ ibnabeeomar

actually, i consider to be balanced as far as this issue is concerned.
http://musafirfidunya.wordpress.com ibnkhalil

Ibneabeeomar: JazakAllah khair, I had never heard of Dave Ramsey. SubhanAllah! a little bit extreme but nevertheless the point is explained.

Wallahi I want to take a class on Islamic finance. I am yearning to learn this knowledge because this will make things more clearer to me. There are not many scholars(in the USA at least) who touch on this subject. Perhaps you can provide some good books on this topic.

This is found I found out from Islamqa.
http://www.islamqa.com/en/ref/3402/credit

JazakAllah khair

ibnabeeomar

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