Where did the credit card come from and why was it created?  Are their benefits in using credit cards over cash?  How did Americans skyrocket to a record breaking consumer debt figure of $3.83 trillion (an 8% increase from the previous year, according to NerdWallet analysis)? Is it possible to live without credit cards?  Let’s drive deeper and look at the birth of the credit card, the pros and cons and measure the vice grip consumer debt has on American’s finances.         

The Birth of the Credit Card

In 1949, businessman Frank X. McNamara was dining with clients in a New York City restaurant.  When the bill arrived Mr. McNamara realized he had forgot his wallet in another suite.  He phoned his wife to bring cash but by the time she arrived, the bill had been taken care of.  Mr. McNamara vowed that this would never happen to him again.  Due to his shortness of   Mr. McNamara marketed the idea of allowing patrons to settle their bill at the end of each month through a credit account.  In Lewis Mandell’s book, The Credit Card Industry, he goes on to share that Frank X. McNamara was a reputable executive and owned a finance company that was struggling and needed to create a cash flow for uncollectable debt.  With that in mind he proposed to, two of his friends Alfred Bloomingdale and Ralph Schneider, the idea of a credit card for restaurants and entertaining.  Card members would be required to pay the entire bill at the end of each month, with an added interest to the monthly payment. This would produce a profit for every card issued.  Twenty-seven restaurants bought the idea.  Thurs, The Diners Club credit card was birthed.  It was the first independent credit card company in the world.   

In 1950, McNamara returned to the same New York City restaurant with his partner and attorney Ralph Schneider. When the bill arrived, McNamara paid with his Diners Club card.  Then the card was a small cardboard card.  This event was hailed as the “First Supper,” laying the foundation for the world’s first multipurpose charge card. Out of one man’s embarrassment and the need to keep his business thriving, his creative financing not only birthed the first credit card but paved the way for the credit card industry, the most aggressively marketed industry in history. 

On the Diner’s Club one-year anniversary, Time Magazine featured Diner’s Club and their success.  The club had grown to 42,000 members and offered cards in 330 USA establishments. Members could charge for items such as food, drinks, rent vehicles and hotels.  Members paid an annual fee of $3 and 7% on all purchases.  Frank X. McNamara’s marketing idea caught on like wildfire.  Although, he thought it was just a fad.  Today, Frank X. McNamara is known as the grandfather of the credit card.

 Frank X. McNamara
Courtesy of Diners Club

  • 1958 Bank of America in San Francisco started Bank Americard
  • 1958 American Express offered a worldwide credit card
  • 1966 Mastercard, originally known as Interbank/Master Charge, was created by several California banks as a competitor to the BankAmericard.
  • In 1966, a group of California banks formed the Interbank Card Association (ICA). With the help of New York’s Marine Midland Bank(now HSBC Bank USA), these banks joined with the ICA to create “Master Charge: The Interbank Card”. 
  • In 1969, Mastercard was given a significant boost when First National City Bankjoined, merging its proprietary Everything Card with Master Charge.
  • 1970 only 15% of American families had a credit card. Today 77% of adults have at least one credit card.  The average cardholder has over seven cards.
  • 1976 Bank of Americard was renamed to Visa, now competing with Mastercard who had reached the European market.
  • 1985 Sears got into a dispute with Bank of America over their fees with Visa and established their own credit card, the Discover card.
  • 1990 Sears fell into financial problems and sold their most profitable division, Discover card.

No man’s credit is as good as his money. Edgar Watson Howe 

In 1910 Sears catalog says, “Buying on credit is folly!”  How far Sears has come from this anti-debt statement.  Another large retailer who took the same anti-debt stance was J.C. Penney. The founder James Cash Penny was an American businessman/entrepreneur who founded the J.C Penney stores and never allowed credit cards to be offered in any of his stores until 1959.  His name, James “Cash” Penney was rumored to be a nick name because of his “cash only” business reputation.  He passed away in 1971 and in 1979, the Visa card began to be accepted in JCPenney stores.  MasterCard was accepted in 1980. In 1984, JCPenney acquired the First national Bank of Harrington, Delaware and renamed it JCPenney National Bank.  With the bank the company became able to issue its own MasterCard and Visa cards. Today JCPenney credit card has a heaping APR of 26.99% and $38 for late fees. Henry Ford is also known to have despised debt so much that he held back auto financing his vehicles Ford Motor Company until ten years after the General Motors offered financing options.    

The Convenience of Credit Cards – Charge It!

Credit cards are very convenient, boost your FICO score and allows the consumer to make purchases with ease.  Credit cards enable the buyer to make large purchases when cash my not be readily available.  Thus, providing the consumer buying power, even when a purchase is not affordable.  Credit cards build your credit rating, is safer than cash, and many come with extra perks and rewards.  Credit cards also make it simple to pay medical bills.  The credit card snob states, “I pay off the balances monthly.”  Yet, over 100 million Americans, even the most disciplined consumers do not pay off the monthly balance of their credit cards.  A card that is going to charge you 16.32%, (according to the CreditCards.com Weekly Credit Card Rate Report) on top of your purchase.  The recent national APR average of 16.32%, marks a new record high in our nation.    Credit cards are a great safety net for the unexpected, an emergency.  And let’s face it the so called “unexpected” should be expected.  The day is coming when you will get a flat tire or the washing machine washes its last load and goes off to washing machine heaven.  Life is inevitable, so CHARGE IT!  Credit Cards forge a way to spend money that has not yet been earned.  In essence, they allow a consumer to borrow money (comparable to a loan) that has not yet been earned and places a price tag on the purchase, called interest.  In turn creating consumer debt. The recent national APR average is 16.32%, marking a new record high in our nation.    What did past generations do when they were face with an emergency?  They had mattress money, cash was king and they had no debt.  Economic specialist report that credit card debt is a generational behavior.   


Brad Blanchard, reports in his article, How Different Generations use Credit that according to 2015 data compiled by Experian, there are notable differences among Baby Boomers, Gen Xers, and Millennials when it comes to card usage, card balances, and even credit scores.  Baby Boomers, generally defined as those born between 1943 and 1960, use the least amount of their available credit — just 25 percent. Boomers carry an average credit card debt of $5,603.  Gen Xers, generally defined as those born anywhere from the early 1960s to the early 1980s, carry the most credit card debt, with an average balance of $6,752. Gen Xers use 41 percent of their available credit, according to Experian.

The Federal Reserve’s reports that in 1970 only approximately 16% of Americans had one credit card.  In 2015, The Federal Reserve’s reported that 70% of consumers hold at least one credit card.  Using the Census Bureau estimation of 248 million consumers in the USA that translates to approximately 174 million Americans with at least one credit card. Yet, the Federal Reserve Bank of Boston, surveyed that Americans tend to hold a variety of cards.  Jaime Gonzalez-Garcia, Author of Credit Card Ownership Statistics, report that credit card issuers reported mailing out 381 million card offers to American consumers in June 2016. 

In addition, Jaime Gonzalez-Garcia writes, in Credit Card Ownership Statistics that TransUnion Industry Insights Report in August 2016, released that 10 million new consumers have entered into the credit card marketplace.  David Ramsey, an American businessman, author, financial broadcaster, television personality, and motivational speaker teaches that the credit card industry is the most aggressively marketed industry across the globe and profits more from the interest fees, late charges and over limit fees than they profit in the products they sell.  Credit cards have drastically altered how Americans spend money and has caused spending habits to whirl out of control. 

Ramsey declares that 70% of people will face a life altering event creating an emergency within a 10 year span of their life. The Wall Street Journal reported several years ago that 70% of Americans are living paycheck to paycheck.  National Payroll Week’s “Getting Paid in American” survey found that 70% of Americans would have difficulty meeting current financial obligations if their next paycheck was delayed by only one week.  In other words, if you count 10 houses on your block seven of those families are living on a razor’s edge.  Just one paycheck away from financial disaster.  So what is the problem? Overspending and overwhelming debt.  Ramsey writes, “credit card industry has done an excellent job marketing the idea that consumers need credit cards since the late 1960’s.  Debt has been marketed to Americans in many forms and very aggressively that the thought of living without it requires a complete paradigm shift.  Banks and the credit card industry do such a fabulous job “selling” debt.  Debt is a product and is the most successfully marketed product in history.  Have you ever considered credit card debt as a product?  If not and are having difficulties viewing credit card debt as a product think of it this way. In one recent year, the gross revenue for the entire credit card industry was more than $150 billion.  That is more than the gross national product of Egypt, Puerto Rico and the Bahamas combined.  Credit card debt is a business and not a service to the consumer.” Taken from Ramsey’s book, Complete Money Guide to Money, page 77-78.  

On the authority of the Federal Reserve, credit card debt hit a new record high.  In January 2018 the Federal Reserves released this statement, “American added nearly 28 billion in credit card, student, auto and other debt in November 2017.  That brought outstanding consumer debt to a record breaking total of $3.83 trillion, made up mostly of credit card debt.  The Federal Reserve’s report does not include secured debt such as home mortgages or any other real estate such as home equity loans.  A new record high for total credit card debt is also a sign of confident consumers.  But some analysts worry that consumers are over-extending themselves.  With the Federal Reserve likely to raise interest rates by next year, increasing the cost of credit card debt even higher. 

  • Financial problems is the number one reason for divorce. With 52% of marriages end in divorce due to financial problems. 
  • A study released in early 2015 from American Psychological Association found that ¾ of Americans are experiencing financial stress and that nearly ¼ are feeling extreme financial stress.
  • As stated by US Today, 63% of Americans will file bankruptcy due to credit card debt.
  • Based on a 2011 study out of Harvard University, nearly half of America’s college students drop out before receiving a degree. The number one reason is money concerns and financial responsibility, and outstanding debt that requires them to work.

Visa has recently reported that Americans spent an average of $430 million per week in 2005 using their credit cards, with an average ticket amount of $10.75. The historic fast food purchase total made on credit cards has risen from $1.7 billion in 2000 to $37 billion in 2005. And along with this tremendous increase in credit card usage at fast food restaurants has come a significant increase in efficiency and profitability for the major fast food giants. 








Mean (incl. those with none)

Mean (card owners only)

















































Source: Gallup2

McDonald’s discovered this many years earlier.  McDonald’s focus group study completed an extensive study and learned that consumers who use credit cards spend 47% more and in purchases and became the first fast food chain to accept plastic for a means of payment.  In 2003, spokesman Bill Whitman said, “The nation’s largest restaurant chain will start accepting payment by credit card by mid-2003.”  Nightline shortly after reported that with the significant increase in purchases, the only thing that changed was the method of payment.    

The quick-service restaurant food sector has never had it so good, with recent growth being fueled by credit card acceptance. Restaurants such as McDonald’s and Wendy’s have realized that America’s addiction to fast food is only rivaled by its addiction to credit cards, so it is a marriage made in heaven.

How did Americans reach consumer debt at a record high?  Some think it is the result of overspending, while others blame it on the rising cost of living for necessities.  In addition, some think it is due to spending above their means and paying for the essentials that their income doesn’t cover.

Carnegie Mellon University did a study of the neurological impact of purchases, and the results were surprising.  They hooked up a test group of 26 adults to a functional magnetic resonance imaging (fMRI) scanner while the researchers studied which regions of the brain activated during each participant’s purchase.  The researchers suspect their study may help to explain why people spend more with credit cards than with cash.

 We have lost the feeling of money and having to hand over our hard earned from our wallets to someone’s hand.  That is painful! Studies have proven that swiping a plastic card has no feeling. According to researchers at Carnegie Mellon, Stanford and MIT, people spend money ’til it hurts.

“Credit cards effectively anesthetize the pain of paying,” said George Loewenstein, Carnegie Mellon professor of social and decision sciences (SDS) and co-author of the paper. “You swipe the card and it doesn’t feel like you’re giving anything up to make the purchase, unlike paying cash where you have to hand over bills.”

In 1949 a man by the name of Frank X. McNamara left his wallet at home, causing him great embarrassment and the first credit card gave birth.  Thinking it would be only a fad, he sold out to Schneider and Bloomingdale for $200,000 in 1953.  In 1957 McNamara was broke, suffered a heart attached and died.  Though McNamara was not able to enjoy the great success of his invention, he gave the world a new way to do business.  Today, the US National credit card debt holds at a solid $3.83 trillion strong and continues to grow.  Given that the US debt figure is at a record high, it may cause one to ask themselves, “How much does it really cost by using credit cards and can I afford debt?



Work Cited


Average Credit Card Debt in America: 2017 Facts & Figures. ValuedPenguin



Blanchard, Brad. How Different Generations Use Credit. June 2017



Credit Suisse U.S. card mail volume. June 2016



Gonzalez-Garcia., Jamie. Credit Card Ownership Statistics. October 2016



General Information on U.S. Census Bureau


Konkso, Lindsay. Credit Cards make You Spend More: Studies. July 2014



Mandell, Lewis.  The Credit card Industry: A History. (Boston, MA: Twayne Publishers), 1990


McDonald’s to accept plastic: Largest fast-food chain to take credit and debit cards to satisfy customer demands for perks. CNN News, November 2002



Ramsey, Dave. Complete Guide to Money. Lampo Press, 2011. Pages 77-91


Recent Developments in Consumer Credit Card Borrowing. Federal Reserve Bank of New York August 2016General Information on the Federal Reserves



TransUnion Industry Insights Report Q2 2016 press release, August 2016



Spend ‘Til It Hurts: Researching the Pain of Paying. Carnegie Mellon University



Wadhwa, Tina.  Subprime Credit Card Lending is Making a Big Comeback.  August 2016





Frank McNamara. http://www.dinersme.com/dc_fifty_content.htm, Accessed April 12, 2013.