Credit Card companies are not out for your best interest. (Pun intended.) This should be obvious, but it is so easy to get caught up in the glamour and convenience of using a credit card.
- Introductory Rates!
- No Interest for six months!
- Rewards Program!
- Cash Back!
It’s so easy to get sucked in, especially with the introductory rates and the idea of getting “paid” to use your credit card. After all, you’re going to make the purchase anyway, right?
Not exactly, if you pay attention to the studies that show how much easier it is for people to fork over a card at the checkout as opposed to cash for the same purchase. Studies are conclusive that people buy more when using a credit card — why else would merchants pay the 3% fee they lose on every transaction? They know they more than make up for it by the end of the day. Bottom line: People spend more when they use a credit card.
Debit Cards
Dave Ramsey argues the position that a credit card is completely unnecessary. For convenience, we have the debit card, which takes the transaction directly out of your checking account.
Others argue that the risk of using a debit card is too great in the event of fraud because your entire checking balance could get wiped out before you have a chance to notice. Yes, you may eventually get all that money back, but in the meantime you have no way to eat or pay your bills.
A way around this would be to set up another checking account with a debit card attached to use strictly for transactions of convenience, such as online or at the gas pump. Money can be transferred from your regular account to cover these planned transactions…
Planning Transactions
Aw, but there’s the crux of the matter, eh? Planning transactions. That means, like, thinking ahead, right? And what about in the case of an emergency? What about when you’re traveling? What about those great deals you happen across? What about…? What about…?
The Hubs and I have a credit card of convenience that we pay off every month. This works — for the most part. We would use it at the pump, for online transactions (Amazon, for instance), for vendors we make regular transactions to, such as Compassion International.
But what we were finding was that, for those transactions that come up — as transactions are wont to do — we would tend to hand over the credit card instead of the debit. It would go something like, “Hmm, I’m not really sure how this will affect our balance for this month, so I’ll just put it on the card and we’ll deal with it next month…”
When we started our debt-free journey, we made a decision: no more random credit card purchases. We even stopped using the credit card at the gas pump. We’ve kept our Compassion contribution on the card, and we still use it for Amazon. For instance, this month The Hubs needed a couple of textbooks for his Master’s course. I now leave my credit card at home. We haven’t made the leap completely to cash (which Dave Ramsey advocates) but even using the debit card instead of a credit card for purchases feels differently.
Planning for Emergencies … Er, What are Emergencies?
Our goal is to get to a point where we’re not only planning and budgeting for purchases, but also for emergencies. Which brings us to wonder, “What, exactly, is an emergency?”
In things I read, emergencies typically include these items:
- Medical Expenses
- Job Layoff
- Injury or Disability
Looking at these categories as a military family, I never felt like they applied to us. After all, my husband can’t get “laid off” from his job; we’re fully covered medically; and if something happened to my husband to where he couldn’t work for awhile — God forbid — we would also be covered by his status as active duty military.
It’s the PCS, Stupid
It wasn’t until I was reading Dave Ramsey’s The Total Money Makeover (tired of hearing about that yet?) that I had an epiphany. We experience an “emergency” every two or three years. It’s called a PCS*!
*A PCS, for those non-military, is a “Permanent Change of Station.” In other words, a move.
We have moved some 11 times in our 15 years of marriage. Mostly PCS-related, a few not. (Times when we’ve upgraded to a better apartment; a better neighborhood; etc.) We always handled these moves by flying by the seat of our pants, really: We put everything on the credit card, then once the dust settled, we looked at the balance and started paying it all off. Usually just in time for Christmas, or the next trip, which then went on the credit card to get paid off in the following months… You get the idea.
The military does authorize entitlements associated with PCS moves. But they come after the fact and never, ever cover all the expenses associated with a move.
Time and Money: Using Credit Costs You Both
All of this to say that credit card companies love us. We are their best customers: we have used them regularly and have always honored our obligations. They love people who, like us, occasionally carry a balance and always honor their debt. Our credit scores are through the roof. BUT — credit cards are still not our friends.
I have a dirty little secret to admit: Sometimes I forget to pay bills. Yes, I use bill pay. Yes, I have many, many payments set up automatically. But I have this thing with not wanting to grant individual companies access to my checking account (comes from moving so much and having utilities “forget” to turn you off promptly) so I always have bills I manually enter month-to-month.
One of these bills is on a credit card, “Debt #3″ (see sidebar). Last month, I completely blew off this payment. Not on purpose, of course. In fact, I had the payment sketched into our budget plan — I just never actually went into bill pay and paid it.
This came to my attention the day after the due date. A notice was sent to my email that a late fee had been charged and the minimum payment had gone up. I slapped my head, cursed muttered under my breath and made the new payment right away.
“Debt #3″ is basically our car loan, only now it’s on a credit card. As part of our debt-free plan, I paid off our car loan by responding to an introductory offer of 0% APR for 12 months. I assumed this late payment immediately voided that offer and the rate had gone up.
Now, I know from experience *ahem* that credit card companies will typically refund a late fee once per year for customers in good standing. That would be us. So I called to request this, and also to confirm that the interest rate had gone up. Good news! We actually have to be late twice in a row for the rate to go up. Yea! That saved me the hassle of transferring this balance to yet another card offer, as this is the debt that will be paid off last.
But whew! What a hassle. Are you seeing how using credit can cost you money and time?
But You’re Our Best Customer!
This is the kicker. By calling in, I opened myself up to their sales pitch for — you guessed it — yet more credit.
Um, shouldn’t I be embarrassed? Shouldn’t I be chastised for carrying such a high balance on a credit card and only paying the minimum each month? Isn’t debt a bad thing?
Why, no, actually — not if you’re a credit card company. It’s a very good thing for them. A very good thing indeed. I’m the best kind of credit card addict — the kind that pays them back, at least eventually.
At the end of the call the customer service representative started pitching me some New Great Thing. I was only half paying attention — kids were gaggling in the background and I could barely hear her. I caught something about “great deal” and “it’s rare for customers to receive this offer.” I assumed it was related to the credit card itself and vaguely wondered if it might involve an upgrade in the reward system. With only half realizing what I was agreeing to, I told her she could transfer me over.
Wait a minute, you’re offering me a $30,000 unsecured line of credit?? At a “low” 8.9% interest rate? Why on earth would I need a line of credit?
“This is a great opportunity to pay off some high interest debt.”
“Already have that covered.” I didn’t bother to tell her that the interest rate on the car loan I just paid off with their credit card had been lower than that.
“Well, what about some home improvements? If you have any of those this would be a great time to pay for them.”
“We’re going to save and budget for those.”
She paused then. I think she was flummoxed. And she sounded all of 12 years old. Had any one ever turned her down before? Did she herself buy into what she was paid to sell? I thanked her for her time and wished her a good day before she had a chance to say anything else.
Becoming debt-free is just the beginning of our journey. My hope is to reach a place where we are completely credit-free as well: no debt, not even “good” debt, to support our lifestyle. When we have a large purchase, we will save for it. When we have an emergency, however that is defined, we will reach for cash from our emergency account. Using the credit card for things that “come up” is so yesterday.
I challenge you to do the same. Is it really just a given that everybody has that car loan? Do you really need to pay a mortgage (and all that interest) for 30 years? If you’ve read this far, don’t stop — I’ve recommended some great books on my sidebar. Challenge your paradigm, think outside the box. This is possible! One. step. at. a time.
And if you’re on a financial journey of your own, let me know. I’d love to hear from you!
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{ 1 comment… read it below or add one }
I can do without a credit card. For 26 years of my life I did not have one as they do not use these things in my country. Hence why the thought of buying things with money that is not yours made me panic alot when dh told me about the credit card he'll get for me.
I still rather cash in hand. That's how I have always purchased anything and if you don't have that cash, then you don't get what it is you think you want/need.
He tells me how it's better too if there is a missing cc that was used without our knowledge and why it's better to use it than the debit card.
I prefer that we save up as much as possible for emergencies and just leave that in a separate account.
I want us so badly to be debt free too.
We are having a Dave Ramsey study at our church – I think it will be 2 months or a month or something like that, but I'm not sure we will go…depends if the dh thinks we need this.
But yes our goal here is to be debt free. I do not trust that card.
Her's to rooting for you.
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