We all know that credit cards can and are often abused by people. We’ve all seen or heard of people that go into tens of thousands of dollars of debt because of their credit card habits. The rational person with conservative spending habits will often ask, what’s wrong with taking advantage of credit cards for what they offer? Never leaving a balance, always paying in full and ultimately using the bank’s money while we keep our money in the CD to draw interest?
Although technically there is nothing wrong with “doing the right things” with a credit card, it still doesn’t mean that you are being smart by signing up for credit card services. A lot of people think that they are whipping the credit card companies and taking them for a spin when in fact it is just a false sense of security. Let me explain….
When you really add up what’s going on you’re talking about say a $1,000 balance of the credit card company’s money and you have use of it for not even up to 1 month. Ok, let’s say that you take the money and put it in a term deposit for 4%. You do understand that it doesn’t even come close to buying you a happy meal? Yes, it is that small that it’s kind of hard to justify isn’t it?
Even if you do all the right things and keep the credit card companies from charging you, I’ll bet that one fine day they’ll bite you and you can’t do anything about it. That’s what credit card companies do a lot of the time. They’ll sit and wait for the opportunity to charge you. One fine day you’ll send in your payment late or they could even be sneaky and say that they didn’t receive your payment then charge you. Yes, that’s how they work. Even if you think you’re being smart now, it just a matter of time that they find a way to charge you. Just a small late charge of $25 will mean that the credit card companies have won the battle.
Just to make it worse, there have been many studies done on the spending habits of credit card users. Spending cash instead of plastic hurts. Spending with credit cards increases your propensity to spend by 10%-20%. Yes, that’s right. With your credit card, you are actually scientifically proven to spend more than you would if you were spending with cash. Ouch…
Ok, you say that you’re the conservative type of spender. Let’s say that you’re twice as good, that means you’ll still spend anywhere from 5%-10% of more when using credit cards over cash. Well, you’re still spending more aren’t you? That credit card has still managed to make you spend more money than you otherwise would! You’re still on the losing end of the deal just because you decide to use your plastic instead of cold hard cash.
Here’s the thing. I’ve met many people who are financially free and well on their way to a fruitful and money filled retirement. None of them think they are smart enough to out-smart credit card companies. They know that with credit card companies, it is similar to playing with fire. You’ll succeed in the short-run but eventually you’ll get burned. Like I said before, it’s just a matter of time.
The smart and sophisticated financial person will throw away their credit cards as soon as possible. Use a debit card instead, or even better, use cash. It’ll be better in the long-run and you won’t have a piece of plastic in your wallet that can potentially destroy you and your family.