Gather Little by Little

Photo from: Visa.com

Credit card commercials really make me mad. Credit card companies are smart and they really know how to play to your emotions. They really want you to believe that by getting what you want when you want it you will have a “priceless moment” or that “life takes Visa” and using anything else is just not cool. Here are just a few of the recent examples of the credit card commercials I am talking about:

• Mastercard Commercials – I’ve lost count of how many different versions of these Mastercard “Priceless” commercials have been released, but they’ve had a bunch of them. The fairly recent one that stands out in my mind is the a teenage boy coming home in a some really nice and expensive looking clothes. His family is all excited and how good he looks, and then you hear the tag line “There are some things money can’t buy. For everything else, there’s MasterCard‘. So, basically if you use your Mastercard to go buy some really nice clothes, you’re happy, you’re family is happy, bliss right? Wrong.

• Visa Commercials – Visa now has a series of “Life takes Visa” commercials. The one that really stands out in my mind is where customers are flocking a sporting goods store to purchase Saints gear. Everyone is paying with there Visa card while the “Saints go marching in” music is playing loudly. Everybody is having a good time…until this one guy in line (a very “buffy” looking character) wants to purchase tennis balls with cash. The music stops, everyone is mad at him, including the merchant. Once he’s done, the next person in line shows their Visa, the music starts again and everyone is happy. You hear the tagline “Life takes Visa“. The message? Visa is the only acceptable payment option.

Like most advertising, the companies are playing on your emotions. Mastercard is telling you that regardless of price, the feeling you get from buying something using your Mastercard is worth it. Visa wants you to feel uncool by using anything other than Visa.

Here are just a few reasons why Life doesn’t require Visa and why the emotions from buying stuff aren’t priceless:

You’ll end up paying way more for the item

The average interest rate for standard bank credit cards topped 19% in March of 2007 (source: CardTrak.com). Note however that 19% is APR (Annual Percentage Rate). Credit Card companies quote APR, but use EAR (Effective Annual Rate) which is higher. For example, on a common credit card quoted at 19% APR compounded monthly, the one year EAR is 20.75%. That amount is compounded daily based on your average daily balance. The calculations are actually quite complex. When you buy something you can’t afford and you can’t pay the bill off within the 30 day grace period, you immediately begin paying, on average 20.75% interest each day that you don’t pay them.

Let me drive this home a little. Let’s say you’ve had a bad week. The storms of life have blown your way all week. You decide that you want to buy that new LCD High Definition TV you’ve been wanting. I mean you’ve had a bad week, you owe it to yourself right? So you head out to the local electronics store and buy a new $3000.00 TV on your 19% interest credit card. You figure you’ll just pay it off over the next few months. At 19%, making payments of $100.00/month it will take you 3.5 years to payoff the card, and you will end up paying more than $4102.00 for the TV. If you only pay minimums, it would take far larger as your minimum required payment decreases as you pay off the balance.

Using Credit Cards will cripple your future

Buying things on a credit card cripples your financial future. Each purchase you make and you have to pay interest on it decreases your future worth. Taking the example above, let’s say we saved that $3000.00 instead of buying that TV and placed it in a mutual fund for 15 years at a conservative 10% return. You would end up with 12,531.74 (assuming interest is calculated annually).

This is the essence of becoming wealthy. Making smart choices with your money and placing it where it will grow. Small amounts will add up. Pay yourself interest, not the credit card companies!

What you buy on credit, really isn’t yours

When you purchase something on a credit card, it isn’t really yours until the credit card is paid back in full. What this means is if you can’t pay them, the credit card company can take the item or force you to sell it and give them the proceeds via litigation. Most people believe this kind of situation will never occur to them. From January – October 2007, more than 640,000 people were laid-off due to mass job cuts according to the US Bureau of Labor Statistics. You think those people thought about their debts when they didn’t have a job anymore?

Don’t let those credit card commercials fool you

Don’t be fooled by credit card companies and their commercials nor by their promises that you’re uncool if you don’t use their cards. Don’t be tempted to buy something you can’t afford just for the emotional high. It won’t last long and the financial and emotional price you may have to pay could be severe. People battle with depression and commit suicide on a daily basis due to being overwhelmed with debt. Debt related suicide is consistently in the top 5 reasons for suicide.

Those happy feelings associated with buying stuff, well they just don’t last that long. Similar to the effects of narcotics, the temporary high is great, but once it wears off there is incredible low. I’ve experienced the highs and lows of buying stuff on a credit card and know first hand. I can’t count the number of times I’ve purchased something I really couldn’t afford only to regret days or months later.

I’ve personally eliminated credit cards from my life. Ana at DebtFREE-Revolution has as well. Lynnae over at beingfrual.net recently did the same.

What are your thoughts on these commercials? How do they make you feel? Have you made purchases on credit cards that you later regretted? Do you owe the credit card companies money? Share your story!