Banks and credit card companies are irresponsible.
There is a debt problem in America. It’s very true that people are responsible for their own actions. But loan and credit card companies are made out of people, and they play quite the large part themselves. They dish out credit – what people see as “money” – that they have no business dishing out. They make it possible for people to have consumer debt that’s 3x what they bring home in income every year.
News flash, a high credit score isn’t an indication that you’re good with money, responsible, or “special.” It means you have borrowed money and paid some of it back, a whole bunch of times. It’s very possible to have a high credit score and maxed out credit cards, and not only that, it’s very possible to have a high credit score having been late with several payments as long as you were under 30 days (and in some cases under 60 days) late. In fact, they dish out the most amount of credit to people who use debt the most, giving them the greatest potential to get in over their heads. Since credit card companies don’t do an income check before raising someone’s limit until it’s higher than money they bring home in a year, honestly, a good score is really not even an indication that you’re going to pay the money back, ever.
Here’s the thing, when you use a credit card, you haven’t paid for the item or the vacation or whatever until you pay off the bill. It sounds crazy to say it like that, doesn’t it? But people really think they’re paying for things when they’re using a credit card.
There’s this episode of Married…with Children in season one when Al is trying to buy a fancy watch for Peg on their 15th or 16th wedding anniversary. He pulls out the old card and as Al so eloquently states, everyone stuffed the card up with so much stuff that when he went to use it, “it threw up.”
After finding out that Kelly, Bud, and Peggy had all used the credit card to buy gifts and this lavish, catered, anniversary dinner, Al says it looks like old Dad “paid for everything” that night.
But here’s the thing: he’s paid for NOTHING! Not yet. And if he doesn’t pay it off in full, he’ll be paying a premium.
There’s this myth going around that you’re paying for things when you use a credit card. It’s a cultural phenomenon. When people use their credit cards, they say they’re “buying” stuff. We hear it all the time. “How much did you pay for that 60” plasma television?” And my favorite, “How much did that car cost?” which should really be more like, “How much are you PAYING for that car?”
If you’re making payments, you haven’t PAID for it! If you charged it, you haven’t paid for it! And if you just pay the minimum, you’re paying the credit card company to use their money. If you pay only the minimum payment on a $2000 balance and never charge anything on it again, you’ll end up paying the credit card company three times or more what the item would have cost you, and it will take you YEARS to pay it off. Wouldn’t you rather just pay for it once, the actual amount it costs, and be done with it forever?
You know, PAY for it…with money.
It doesn’t matter if we’re talking about cash or money in the bank via debit card. Paid for cars feel different when you drive them. That new television looks even shinier. Your life isn’t ruined in the pursuit of stuff.
You know you really want to buy something when you’re willing to part with actual money to get it.
This is how our resident Jane figures out if she wants to buy something.
The old Jane would have found a computer that she likes, and then seen if she had enough space on the credit card for it. The new Jane finds a computer that she likes, sees how far down she’ll have to bring her account to buy it, and then sleeps on it. If she really, really wants that shiny new computer, she’ll have to pay for it, and watch that balance in her savings account dwindle.
Turns out, her old computer (which is only 3 years old) is still perfectly shiny.
Not only do we feel better when we actually pay for things and think before we buy, but we don’t run into buyer’s remorse later. The “why oh why” did I buy that stupid thing?! The “what the crap did I spend all this money on” thing.
When your stuff is paid for, THAT feeling is priceless. And you don’t get that by carrying a balance – whether it’s 15 days or 15 years.