How to Combat Your Internal Credit Card Debt Excuses

by Kevin on November 11, 2008

Yesterday I gave you 10 tongue-in-cheek great reasons to have credit card debt. Today I’m giving you the counter arguments to all of the things I listed yesterday. (If you haven’t read yesterday’s post, you probably want to do that before reading this list. It will make more sense that way.)

  1. Don’t use what you don’t understand. Not understanding how credit cards work is not an excuse for having credit card debt. I don’t completely understand how guns work, so I don’t own or use one.
  2. Read every contract you sign — including credit cards. If you don’t understand something, don’t sign. This applies to credit cards, mortgages, and any other contract you sign. For credit cards, check what all of the fees are including interest rates, late fees, and annual fee. (Don’t get a credit card with an annual fee.)
  3. The minimum payment excuse is especially bad. It can cost you thousands over the length of the charge. Let’s assume you charge a $1,300 LCD HDTV to a credit card with a 19.99% APR. Your minimum payment is $25 per month. If you just paid the minimums, it will take you 16 years and 1 month to pay it off. You will end up paying $1,300 in principal and $2,741 in interest. Essentially, you’ll buy the TV three times! (Even if your minimum payment was $50, it still takes you over 6 years and you pay $708 in interest.)
  4. Paying interest and fees quickly wipes out any points, cash back, or any other benefit of using the card. I am a big proponent of using our credit card to earn cash back. In fact I earned $470 in cash back last year. But if I paid interest on my purchases then it wouldn’t take long to quickly wipe out all of that cash back. If for some reason you need to carry a balance (and you shouldn’t), find the lowest interest rate you can regardless of points, cash back, or bonuses.
  5. Credit cards are not emergency funds. You should have 3 to 6 months of expenses saved up in a savings account. A few reasons for this: you’ll earn interest while the account sits idle, saving is a good habit to start so why not start with an emergency fund, and credit cards charge interest. If you are having a true emergency you want to minimize cost, not add to it by paying interest. Also, if you can’t seem to save an emergency fund… to me that is a telling sign that you can’t control your money. You probably have credit card debt, and there is no guarantee you’ll have enough available credit to pay for your emergency.
  6. You probably won’t pay off your well meaning charge within a few months. “I’ll pay it off in six months” is easy to say. Let’s face it: you’ve failed to save for whatever you are buying with your credit card. It is highly unlikely that you in such control of your finances that you’ll be able to just make six large payments to pay off the purchase. Why not save up for the purchase and prove you control your finances? Not only that, but the interest you would save (from the example in #3) would more than pay for a new TV down the line.
  7. The “I’ll wait until…” excuse will keep you from controlling your finances. Assuming you are going to get a big raise or bonus at the end of the year is a dumb reason to keep on having credit card debt. You can’t control your current income… what makes you so sure you’ll control a larger income in the future? Plus, you shouldn’t participate in lifestyle inflation. Put those raises and bonuses straight into your savings account.
  8. Be a contrarian. Go against the crowd mentality. As my parents used to say, just because everyone else is jumping off of a bridge doesn’t mean you should as well. The same thing applies here. So Americans have on average $8,500 worth of credit card debt. That’s sad, not something to boast in. Go against the grain, live debt free. I doubt the Depression-era generation would agree that consumerism is the American way.
  9. Automatic payments will save you interest and frustration. There is no good reason to not use automatic online payments for your credit card. I’ve got our Visa card setup to automatically payoff the statement balance every single month. That’s one less thing for me to have to remember and worry about. I know the payment is going to be taken out of my checking account every month. Plus, it saves me trips to the postal office and the cost of a stamp and envelope. It’s also hard for the credit card company to deny you sent your payment in on time when you did it electronically.
  10. Spending is emotional. It should not be your comfort activity. Just like the stereotype of women eating chocolate ice cream shouldn’t be their comfort activity either. Spending out of control… eating out of control… both are bad for you. Learn to keep your emotions in check when you go to spend money. Is this a big spur of the moment purchase? Perhaps you should think on it for a day or two.

What about you? Are you a contrarian, going against the tide of consumerism in America? Leave a comment and tell us how you’re doing it.

{ 1 comment }

Sheena November 17, 2008 at 9:22 am

An apt article for people who use credit cards incessantly without any control and increasing the debts. At present I’m also trying to get out of debt and have made a resolution not to use my credit card which I have been sticking to religiously.

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