I don't think that is getting at the main confusion. It is pretty clear how, if someone can't pay their debt back, they're worse off. The confusion is that a credit card is a short-term smoothing tool. The point is to let merchants assume customers are good for it instead of going through the whole process of checking with a specific bank or expecting people to carry physical proof that they have the money. Using a card can't get someone ahead, the bank is expecting to charge the customers more than they give them.
So why is it necessary for these people to be using a credit card if they can't pay it back? Especially if they have an average income that is sufficient to cover their lifestyle. If they're going to be strictly worse off after engaging with a system, why are they engaging with it?
>The point is to let merchants assume customers are good for it instead of going through the whole process of checking with a specific bank or expecting people to carry physical proof that they have the money
I lost you there a bit. Why can't debit card serve the same purpose?
It can and does in my experience. I suppose my question is me basically asking for a reminder of why rational poor people are using credit cards. I've always assumed they were a tax on people with no impulse control and/or poor mathematical understanding.
It is easy to see how someone with no money would take out a loan via a credit card and be unable to pay it back at all. But if they can pay it back, then outside of very rare instances why can't they arrange their affairs so they have the equivalent amount of savings up front? Their income is at least equal to their expenses on average in the short term, they can't be using credits cards to cover long-term imbalances because the interest is too punishing. If their expenses are experiencing variances then there must be opportunities to put aside an emergency fund.
I don't see how the math checks out that they need and can afford a credit card if they can afford to pay some sort of "poor tax". If you can afford the extra cost of credit card interest, you can afford not to have one. Otherwise where are the bank's profits going to come from?
So why is it necessary for these people to be using a credit card if they can't pay it back? Especially if they have an average income that is sufficient to cover their lifestyle. If they're going to be strictly worse off after engaging with a system, why are they engaging with it?