No credit cards – Here's why
“Nope, no credit cards for me. I don’t even carry one.” I cannot tell you how many times I have said this phrase or something very similar to friends and family over the past 3 years. Most recently it came up at the store while looking at a “great deal” on something in the electronics department.
I was talking with a guy there who was considering purchasing the same item. Since we hadn’t allocated the money for it in our budget, I decided to pass on it. I said something to the effect of “I’ll have to pass this time, I don’t have the money.” to which he replied “Heck, I’m buying it. That’s what credit cards are for right?” I wanted to just walk away, but since he asked, I just couldn’t help but reply: “No. You’re using money you hope you’ll have in a few weeks. If you don’t or you elect to not pay it off, you’ll end up paying more for it than you would have without the deal…potentially way more.” He looked at me with a deer in the headlight look, and I just walked away. It was obvious that he really wasn’t looking for an answer, nor did he want to hear a lecture on credit cards. His mind was made up.
My wife and I stopped carrying credit cards when we had our financial epiphany. We cut up our credit cards and haven’t carried one since. Unfortunately we still owe on them, but we haven’t used one in a long time. Here are just a few of the reasons why we stopped and why many of you reading this should consider stopped too:
Buying things you can’t afford
It took me years to realize it, but we (more myself than my wife) used credit cards to buy things we couldn’t afford. If we went to a store, saw something we wanted (and wanted now) and if we didn’t have the money to buy it, we would use a credit card.
I distinctly remember walking into an HH Gregg store looking at large screen TVs. I remember convincing myself “that I deserved it“. I worked hard right? I made sacrifices for my kids right? I deserved this TV. My wife applied for a zero % interest deal they were offering (I couldn’t apply as I wouldn’t have qualified due to the amount of outstanding debt I had). We walked out a few minutes later with a $3000+ big screen TV. I can’t believe how stupid we were.
Everything came to a head for me when I was buying groceries and gas one night on a credit card because we had no money in our checking out. A huge sign that you’re in big financial trouble is when you’re buying life basic items on credit because you don’t have the cash.
You can barely pay the combined monthly payments
A very common financial tool that myself and many other personal finance bloggers talk about frequently to assist with paying off debt is the Debt Snowball. I have a debt snowball now, but the first one I had was a very different kind.
I had my first credit card as a teen. I got a few more in college, then a few more after I was married and employed, then a few more later. After a while I probably had more than 5-10 different credit cards, all maxed to the limit.
The initial minimum payment was easy, but the payments snowballed on me from there. Each minimum payment from a card added to the next and then all of the sudden one evening I had more minimum payments than I could make! Believe it or not, I actually used other credit cards to make minimum payments on my credit cards!
The worst part is that at the time, those minimum payments weren’t even enough to keep me ahead of the game. The credit card companies were loving me. I was paying huge amounts of interest on items I had bought years before and making zero progress on getting the balance down. I’m pretty confident I was on their list of top 10 best (read stupid) customers.
Living off of potential future income
After getting our finances under control, I realized at some point that when you make purchases on credit cards, you are using someone else’s money. In my case, I was literally using someone else’s money because I didn’t have any of my own. When that finally clicked with me, I felt terrible. I wasn’t good enough at managing my own finances, so in order to live I had to rely on someone else that could. Looking back, I still can’t believe I didn’t see that. If you are struggling with debt, please re-read what I just wrote and let it sink in.
Using credit cards, you are also borrowing off of your future income. If you buy something today on credit that you intend to pay off next month or maybe even over the next few months, you’re making the potentially dangerous assumption that you’ll have the money then. This is not a safe assumption to make, especially in today’s economy where lay-offs are becoming far too prevalent. Instead, live off of money you have now, not my money you hope to have sometime in the future.
Stop being slave to the lender
I realized this pretty quickly when I was calling credit card companies asking for reversal’s of $40 late fees and decreases in 28%+ interest rates that I was definitely slave to the lender. I had nights were I wouldn’t sleep due to the stress of having more than $60,000 – $70,000 dollars in debt (excluding our mortgage) and having no clue how in the world I would ever pay it off. I some how had convinced myself that it was normal, that everyone had a large amount of debt and that it was just the American way. I had a dark cloud of debt following me around everywhere I went.
I finally got tired of not sleeping, worrying and relying on those credit card companies. I finally did something about it. While I’m not debt free, I’ve paid off more than $50,000 in debt in the last 3 years by selling things, using a debt snowball, and through cutting up our cards to avoid going in the wrong direction.
We’re still slave to the lender, but far less than we were. If things go as planned, in 2-3 more years with the exception of our home, we’ll no longer be slave to the lender and will be debt free.
How about you? Do you use credit cards? Why or why not? Did you have a major turning point like I did? What did you do? Add a comment!
Photo by: smlp.co.uk