Wednesday, April 8, 2015

Credit Cards are Evil


Credit Cards are Evil - Stacy Snyder - ParentUnplugged
Dr. Marten boots rock when you pay cash!
Don’t use credit cards unless you have the financial means to pay the card off in full every month.  There’s no points program in the world that’s worth carrying a balance on a credit card, as the interest, which is the fee paid for the privilege of borrowing money, no matter how low, accumulates at an alarming rate.  The minimum payment calculation equation was not created with the consumer in mind, but instead leans toward bringing in the maximum amount of interest to the creditor. 
When you leave a credit card balance unpaid in its entirety by the monthly bill date, you get charged interest on the outstanding balance.  If you continue the next month without paying off the entire balance, you end up being charged additional interest on the same balance AGAIN, as well as on the interest that was added the month before!  Effectively you’re growing your balance every day you don’t pay off the full balance.  In many cases, if a balance is strung along over many years’ time, one can end up paying more interest payments than the amount of the original credit card debt.
It’s sounds simple not to use credit cards for purchases, but it’s actually quite complex when you consider that the norms in our society include borrowing liberally to leverage our purchase power, especially when it comes to education, transportation, housing, and small business.  Basically it’s financial peer pressure.
I was given the basics as a child.  I learned to make money early-on by watching my mom take odd jobs to come up with enough money to make ends meet in our household.  Not just any job, but jobs that she could complete while still attending to my sister and I, as well as all our activities, i.e. Living Large.  She worked as a part-time secretary in the mornings, and conducted market research studies on Playboy magazine readers who “just liked the articles” on weekends so she could cart me around to play practices and auditions after school.  She walked door-to-door during the daytime verifying contact information for local phone directories so that she could attend my sister’s tennis matches in the afternoons, and she secret shopped and sampled products at stores during high-traffic hours so that she could pick us up from school and take us to the counter at Kresge’s dime store for a burger at lunch occasionally.  I may have had an allowance as a child, but with my first part-time job in my early teen years, I quickly got the idea of making my own money.  I also quickly learned that I could only spend so much on clothes and candy and outings before my wallet or bank account was empty.  Those years were fun and simple when it came to money….work more or spend less if you wanted to save for something big.
Credit Cards are Evil - Stacy Snyder - ParentUnplugged
Then college came around and despite taking years of trigonometry and calculus in high school and establishing financial independence with the money I’d earned from my part-time jobs, I had never been exposed to the concept of credit and interest.  I just knew you couldn’t spend what you didn’t have…that is until I strolled through the line of credit card vendors in the commons that first week of college.  “Buy it today and pay it off later,” they flaunted as they handed me my free dorm-room-shower-caddy for opening up a revolving credit account at 21% interest.  “Establish your own credit history,” they boasted, and I was fished-in on the independence reel.  I started using the cards for little things just to use it….a movie at the 400, a pack of smokes, or a few books for school, but soon it turned into bus tickets to visit friends for the weekend, a pricey pair of Dr. Marten’s, and a tattoo to match the image.  The purchases added up and the interest began compounding; the bills started showing up at an astonishing pace.  
I’d pay this one with the little money I had at the time and hope nothing else showed up until I got my next work-study paycheck or made a few bucks typing papers for fellow classmates.  Never once did I sit down and write out a budget of what little money I was actually bringing in on my full-time student and part-time employee status or what large amounts of money I was spending in the little time I had between work and class and homework and partying.  Had I done that I might have been able to balance out the scales early in the game. I had no concept of interest. While I could easily calculate the interest rate into dollars on the balance, I didn’t get the idea that the unpaid balance left each month after the minimum payment was made would just keep getting re-penalized monthly, compounding to the balance, ultimately increasing your balance each day.  I just kept running, trying to make more money to pay more debt.  Creditors’ reminder calls started coming in as I got behind on payments and soon escalated to threats of home-visits and repossession of purchases.  While dreaming up new ways to dodge the calls and throw off the creditors provided hours of free entertainment to my roommates and me, it was actually super stressful, extremely overwhelming, and sometimes downright scary.
Ultimately I turned my personal finance situation around, but I continued to feel the social pressure of leveraging my purchase power with extended credit well into my 30’s.  I was challenged to “stretch” on the mortgage of our properties by lenders and “trade up” on the car for just an extra hundred a month, and even to finance my cell phone for mere pennies extra each month.  I look back now and can’t believe the thousands of dollars I wasted on unnecessary interest payments because of the need for status and instant gratification. 
Had I not calculated my interest expenses in a budget, though, I might not have come to my senses enough to stop using credit cards unless I can pay the balances off in full.  It all comes back to budgeting, which is part planning and part monitoring.  If you can see what you’re spending, you can see where you can cut expenses, and high interest payments, which provide you with zero return, are a glaring example of what to add to the chopping block.
When it comes to purchasing, cash trumps credit cards.  Buy what's important to you, spend what you can afford, live within your means, and ix na the credit cards.   They can lead to financial disaster if not completely understood.