The Credit Card Monster
We’re going into week 5 of Financial Peace University this coming week and I’ve already learned so much. Last night we watched Dave Ramsey speak on “Dumping Debt” and he taught on a lot of myths and then told us the truth about those myths. One of the myths he spoke about was that we are taught in our current society that you must have a credit card to be an adult and to build good credit. I believed that myth for years and ended up going into a lot of debt because of it. The debt was completely my fault. I’m not blaming the credit card companies for my debt. They are marketing geniuses and market aggressively to consumers. They are not out for our best interest as much as they want us to believe they are.
Here’s one of the myths about credit cards that Dave pointed out last night in the class (it is also in the workbook. I want to give credit where it’s due and not infringe on any copyright laws!)
Myth: I pay mine off every month with no annual fee. I get brownie points, air miles and a free hat.
Truth: Recent Dun and Bradstreet study found that when you use plastic instead of cash, you spend 12-18% more because spending cash hurts. So what if you get 1% back and a free hat?
He also showed a study on why McDonald’s now takes credit cards. With cash customers used to only spend an average of around $4. Now that McDonald’s takes plastic they spend an average of around $7.
There was another report that stated that 75% of all air mile points are never used or claimed. I can vouch for that from using my Discover card and then closing it never having used any of the points or miles accumulated on it. I didn’t have enough to do much with anyway! We used to own a GM Master Card that you could rack up GM points with and get money off a new GM car once you had enough. We thought that was a fantastic idea! We loved GM! Dave points out that the money you have to spend to get those points is A LOT only to go buy a brand new car that loses thousands of dollar in value once you drive it off the lot. Not good math. Ummm… we did that. We still have that car. And it was payed off years ago thankfully but we paid a lot for it. Dave only buys gently used cars, by the way. But that’s a lesson to be saved for another day!
The point is, many people think they can “beat” the credit card companies at their own game. Usually they aren’t. Credit card companies aren’t making billions off Americans each year because they’re dumb. They are always going to find a way to make money off even the most frugal, careful and responsible person. It only takes one crisis, one lost job, one time of paying your monthly balance late or forgetting and then you are rocketed into credit card hell. (My words, not Dave’s! The point is the same though.)
Here are some “Credit Card Crumbs” as Dave calls them from his lesson on dumping debt.
- The Total American consumer debt is more than $2.7 trillion
- The average household credit card debt has increased approximately 167% in the past 17 years
- There are 1.3 billion credit cards in circulation in America
- The credit card industry mails out over six billion credit card offers each year, sending an average of six offers a month to each American household
- 45% of American cardholders make only the minimum payments on their consumer debt
- The average balance per credit card-holding household is more than $9,300
- It would take over 13 years to pay off the average credit card to balance if only making the minimum monthly payments of 4% at an average interest rate of 15%
- Credit card interest rates are often raised when a cardholder takes out a new loan, such as a mortgage, car loan or other type of credit account.
- A singe, first offense late payment can immediately raise a cardholder’s interest rate as high as 34%. A “late payment” is defined as anything that posts after 2:00 pm on the due date.
- In addition to increasing the cardholder’s interest rate, a card issuer can charge a fee of typically $29-39 for a late payment.
- The credit card industry takes in $43 billion per year in additional, unexpected fees from the consumer, such as late payment, over-the-limit, and balance transfer fees. Late fees alone bring in more than $11 billion.
- Overall, American households spend over $412 billion in credit card charges each year.
Wow. Last night’s lesson was so eye opening. I was amazed at how much we fall for marketing schemes! And the amount that Americans waste on debt each year is astounding. I was mad at myself for the part I’ve taken in being careless with our finances. We have one card left to pay off and thankfully it will be paid off by the end of the year. And that will be the last credit card we own. We’re making sure every credit card account we’ve ever opened is completely closed.
Dave even showed results from a neurological study that showed the difference between pain sensors and those who paid with cash registered more pain that those who swiped with a debit or credit card. Psychologically, we don’t see using plastic as spending “real” money.
That’s why we’ve loved (and hated!) using the cash system that Dave Ramsey teaches. Here’s the little envelope system that comes with the FPU kit. However, you can create your own envelope system by using plain envelopes!
Each envelope is also a little ledger so you keep track of what you took out of that particular envelope. As I said, you can do this with any envelope! I do like being able to carry this around with me.
In August there are huge changes coming to the credit card industry. Many of them are sneaky. If you have a credit card please keep an eye on your credit cards and get rid of the ones you can.
The rich rules over the poor, and the borrower is servant to the lender.
Proverbs 22:7 (NKJV)
Owe no one anything except to love one another
Romans 13:8 (NKJV)
Cutting up our credit cards and using a cash envelope system works for me!
What are your thoughts on credit cards? Were any of these facts eye opening to you?
Do you struggle with credit card debt?
This post is linked to Works For Me Wednesday at We Are THAT Family.
