The neck still hurts, but I’m hopefully going to the physical therapist today or tomorrow. It needs to be done. And thanks for all who told me about the PIP; I had no idea.
But that’s not what I wanted to write about. I heard a great Dave Ramsey quote that I think puts debt into a great perspective:
Debt is not a privilege; it’s a product.
He then went on to talk about how being someone today seems to entail getting a credit card. It’s become a rite of passage. You are an adult when you are responsible enough to obtain a credit card. And it’s not just a credit card, but there’s a level of coolness associated with the name and the brand. For example, MasterCard or American Express? Which one is cooler?
See what I mean?
The truth of the matter is that credit cards by their very nature are ridiculous. Check this out… You, the responsible adult, beg someone, the credit card company, for the privilege of borrowing money at rates as high as 29.99% and this makes you cool and smart?
No. Cool and smart would be to recognize the sham that is and the danger that credit cards pose to your financial stability. The truth is that credit cards are a gateway to uncontrolled spending, risk taking, and debt, and that applies to everyone who uses them. Now before you all get up in arms and point out your reward points or air miles or the fact that you pay them off every month or whatever, let’s just talk for a minute and debunk some of your complaints.
Reward points, airmiles, and other gimmies
So you’re responsible because you get all these points and what not, right? You get 1% cash back, right? So… You get a penny on the dollar. You get an air mile for every dollar. When was the last time you cashed in your airmiles? Me? I’ve still got 60,000 air miles sitting on two credit cards that are long dead and gone. They’ve sat there for 3 years now, and I still haven’t found a use for them.
And let’s get this straight… You spend $20,000 to get $200? Or let’s make that more realistic; you spend $2,000 to get $20? If you missed paying off your credit card even once, just one month, and guess who just won that battle?
Remember: It is the job of the credit card companies to make money off you, and they spend literally billions of dollars doing just that. If you are smart enough to take that on and win, go for it. Me? I win by not even entering that battle field.
I pay it off every month
Good for you. At least you do that. But most people don’t, and like I pointed out above, it just takes one month to completely lose that battle. If you really do pay it off every month, why not just pay with a debit card? Or better yet, pay with cash?
According to Dave Ramsey, using a credit card means you are likely to spend 12% to 18% more than if you used a debit card or cash. Using cash registers as pain in your brain, and you are more likely to spend responsibly when doing so. Debit cards have a similar, though much more mild effect. Credit cards have no pain and often lead to impulse buys, so even if you do pay every month, you still lose.
My wife and I went to a no-credit card system over a year ago, and we saw an immediate drop in, for example, our grocery budget of around 25%. I don’t know about your family, but in our house, that saved us hundreds of dollars a month, and we never noticed the difference in the fridge. Most of the extras were just that, extras. And that doesn’t include the drops in the rest of our budgets. All told, it was like getting a 20% raise.
Credit cards build credit
So do utilities, bank accounts, student loans, and cell phones, and you’ve already got all those. You probably have a car payment and maybe even a mortgage, and that works, too. My wife never had a credit card until I forced one on her “to build credit.” Turns out she didn’t need it, and her credit score is higher than mine. Another friend never had a credit card and her score was and is higher than mine, and I have a great score.
Credit cards are not essential for a good credit score, and can even hurt you if you misuse the card.
Credit cards protect me in an emergency
Really? Your answer in an emergency is to assume debt? Let me know how that works out for you.
I need a credit card to rent a car, get a hotel room, or shop online
Nope. I rented a car just yesterday on my debit card. I’ve rented rooms on my debit card. I shop online all the time with my debit card. And before anyone states that debit cards don’t have the same protections as credit cards, look it up. Yes they do. All of them. As long as you swipe the debit card and sign your name, the card is treated just like a credit card except the money is taken out of your checking account. Look it up.
So cut them up. We did in February 2008, and despite the doom and gloom predicted by many around us, we’re better today than we were then.
One final note, as much as I’d recommend killing the cards off, closing the accounts is a different matter. Be cautious in closing the accounts too rapidly since a large portion of your credit score is made up of your debt to credit ratio. Go ahead and cut up the cards, but try to keep nothing higher than a 30% debt to credit ratio while paying them off and closing them down. When they are all paid off, you can close them all down, but closing them too quickly will affect your credit score. Personally, we still have one credit card account open, but the cards are long gone. The only reason it’s still alive is that I keep forgetting to close it. I’ll have to remedy that soon….
Debt is not a rite of passage. Credit cards are not a rite of passage. More often than not, they are the gateway to financial hardship even for the most responsible users. It only takes once before you lose. The best comparison I can think of are all those kids in high school who tried something they knew they shouldn’t because “they were different.” Because “it won’t happen to me.” Trust me. You’re not different. I thought I was, too.
Now that I’ve been living without credit cards or credit card debt for the last 13 months, I guess I really am different.
Here’s another Dave Ramsey-ism for you:
Debt is normal. Be weird!
Given the options, I think that’s pretty sound advice.