There are few things in the financial world that are as polarizing as credit cards. It seems everyone has an opinion. Some people love them, some people need them, and to some people “credit card” sounds a bit like a curse word. Credit cards have the incredible ability to facilitate poor decisions, yet a limited few individuals seem to flex their power to leverage cc spending. Credit card companies do their best to market the idea of responsible credit card use (quite similar to alcohol beverage distributers). And they are really good at their craft. Over the last fifty years, they have taken an outcast concept and integrated it into our society. While the notion on using a credit card can be justified, carrying a balance on a card is difficult to justify for anyone that can do third grade math.
Credit card debt is a unique proposition. Companies will lend you money in a very convenient way then charge you tons of interest if you do not pay them back. It seems simple but so many people fall into the trap of credit card debt. Credit card debt has almost nothing to do with income. You will not earn your way out of it. If you have credit card debt it is a clear sign that you are disorganized. It means that you have been living above your means or so close to the edge you needed help. Chances are good that you had an “Emergancy” and Visa picked up the slack. The ironic part is that credit card debt is a middle income problem. People with money don’t need credit cards and truly impoverished are unable to qualify. You don’t accidentally get out of credit card debt. It must become a priority. Credit cards are not for emergencies, they are emergencies when you can’t pay them off.
Seriously, you are on fire! It is an emergency
There should be no investing, no extra savings, no buying a house, no vacation, no driving a car*, or eating in a restaurant if you have credit card debt. Seriously! You don’t need credit, you need money!! It must become an emergency or you will wake up with credit card debt when you are seventy. It doesn’t magically go away. Credit cards are not really the problem, most often they are the symptom. If you find yourself in debt, the first step is getting organized. Feel free to jump over to a blog, read a book, or have a hard conversation with your spouse or mirror. You must take control of your life and your financial picture. Earning more money will not help if you remain disorganized.
I can’t, in good conscience, recommend anyone that has credit card debt to ever own a credit card. It is playing with snakes. You need to cut up the cards and get some money! All the conveniences of a credit card can be had using a debit card and it makes it impossible to go into debt. I’d still recommend the envelope system as a means to take control. We still use it to this day and it keeps us accountable to ourselves and each other.
The expense of credit cards
Do you buy more when you use a credit card? Another endless debate among the financial community. Although some individuals challenge the very notion, statistics show that Americans spend significantly more when they use a credit card instead of cash. And if you want to understand why banks are so profitable, flip the math around on credit card usage. If you were to invest $30k (pretty close to my areas average credit card debt) at 18% you would end up with a little over $4.3 million in thirty years. That is precisely why people in debt have trouble getting out. I’m pretty sure you could take a nice vacation or buy plenty of christmas gifts with 4.3M. How much are you paying to the bank? In essence, carrying expensive credit card debt is like paying the bank 18% on their money! Your house is on fire!
In addition to the math, there is an untold pressure that credit card debt places on individuals and couples. It is hard to feel truly free when you owe thousands of dollars to a faceless bank. When couples disagree on money, it normally means that they really have a fundamental disagreement on future goals. It means there is a missing piece of communication and disorganization- credit card debt is often just the symptom.
Visa is smart
I don’t even hate credit card companies. More than anything, I’m impressed by their marketing ability and psychological tactics. There debit products are still a technological marvel to behold. One thing we all know, credit card companies are not in the business of losing money. They hire some pretty intelligent mathematicians. Credit card companies spend a lot of money trying to produce an image of the casual, responsible credit card user. Sure there are a few, but they make their money from the revolving credit individuals who carry a balance and pay massive about of money in interest. They know what they are doing. Are you easily influenced by their marketing? Is your spouse? Do you think of credit card debt as normal?
My goal is to make you more efficient with your money. And if you have credit card debt, you are spending your money in one of the least efficient ways possible. How much current value do you get pay 18% interest to a bank? Getting out of credit card debt starts and ends with getting organized. You must develop a game plan to begin the process. You must be on board and share the same goal with anyone who makes financial decisions with you. If you are currently in debt, you don’t have to be a year from now. For some, it might take a few more years but it is still a process worth starting. You must understand- if you are currently in credit card debt your house is on fire. You need to take action today! Develop a plan. Have a hard conversation. And don’t be in the same place a year from now.
*good luck with that one Mr. SE