Much has been written about the deceiving practices of credit card issuers and our government’s newfound desire to closely regulate them. make it harder for them to continue. In my opinion, some banks and bankers (like some politicians) are bad, greedy, and in need of some adult supervision. Most, however, play reasonably fairly, especially when considering the risks they take in voluntarily lending money to people they barely know.
So rather than focus on the periodic mischievous practices of the banks, let’s discuss the top five lies we tell ourselves about credit cards which are far more dangerous to our long-term financial health. After all, we can’t count on the government to protect us against thoughts in our heads, can we?
Top 5 Lies We Tell Ourselves About Using Credit Card Usage
Lie # 1. I can afford the big screen television/cruise vacation/lifetime supply of organic milk, just not now.
If you can’t afford the purchase right now without financing with your credit card, you can’t afford it. Period. While this doesn’t necessarily apply to big ticket items like a car and a house which will have unquestionable value a month from now, the logic holds for virtually everything else. Some people convince themselves that a credit card is a tool allowing themselves to re-define what it is they can afford. As such, they buy things that they honestly believe they can afford before they actually have the cash for the purchase. But it’s a big lie: if they could afford it, they’d have the cash to pay for it.
Lie # 2: I have a great rate – like 0% APR – so I’d be a fool not to use the card.
Wrong again, smart guy. There’s a reason why banks give you such generous rates and it’s called profit. Sure, they forgo some of the profit in the beginning while you rack up charges during your “teaser” period. But, after the teaser period expires and your rate goes up to some astronomical level, they make it all back and then some. Remember, same as cash is not the same as paying with cash.
Lie # 3: The reward points totally make it worth it.
After a few months you might, indeed, have enough points for a free airline ticket. Furthermore, after several hours on fourteen different web sites navigating dozens of blackout rules might actually leave you with a mid-December red-eye trip to Des Moines. But how much in interest charges, annual fees, and other miscellaneous expenses will you pay along the way? I’ll give you a hint: it’s almost never a free ticket. (That tee shirt you got when you signed up wasn’t really free either by the same logic, now was it?)
Lie # 4: I need to use my credit card and pay interest in order to build up my credit history.
While it is true that your responsible use of a credit card can improve your credit score, it’s also true that irresponsible use of a credit card can ruin your credit score. Furthermore, it is not true that you must carry a balance in order for the credit card to build your credit history. (I had several people in multiple cities last year tell me that was one of the reasons that they were carrying a balance. I don’t know the source of the rumor, but trust me, it’s total nonsense. In fact, whether you pay your full balance every month or simply make the minimum payment, as long as your payment is on time, you’re building up credit).
Lie # 5: Since I pay my balance every month, there’s nothing wrong with using credit cards for everyday purchases.
This statement is almost universally accepted. (I’ll admit I believed it for many years.) But it, too, is not true. Saving strategy number one is to stay emotionally connected to your money. When you spend cash, it hurts – right away. When you spend with a credit card, there’s no pain (at least not until you get the bill). The separation in time a credit card allows between when you make the spending decision and when you feel the pain allows you to spend more. Furthermore, the convenience of using a credit card allows you to spend more often. Taken together, the use of a credit card means you spend more money and you spend more often. That’s what it’s a lie to think that by simply paying off your credit card every month, your credit cards won’t affect your finances. Doubt me? Leave the cards at home for a week and see how much less you spend. The results just may scare you.
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What do you think? What other lies do we tell ourselves regarding credit card usage?