Mindless Spending: The Credit Card
I don’t remember exactly how old I was when I got my first credit card, but I do remember that it was something I had been waiting for.
Here are some hard and fast rules for approaching plastic:
One: if you don’t have the cash, don’t use the credit. The only responsible way to use a credit card, if you must, is to immediately pay it off; if you carry a balance you’ll pay interest. In other words, you are paying someone else for the privilege of spending. Pay yourself instead by keeping a zero balance and saving on monthly interest payments. As for keeping a credit card around for “emergencies” – trust me, I’ve been there. In hindsight, I can say that most of my “emergencies” were not emergencies at all; I was simply being impatient. If I had saved the money instead of using credit (and then paying interest and fees) I’d have been a lot better off… and I would have had fewer real financial emergencies to worry about later.
Two: if you have the cash, don’t use the credit. Using cash instead of plastic is one of the smartest ways to keep a budget in check. Why? Because spending cash hurts. A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash (Source: 2). Reason being, your brain registers physical pain during a cash transaction. With cards, there’s less of an impact; it hurts less, and you spend more – usually without realizing it.
Three: Don’t treat your debt like money. It’s not your money, it’s your debt. You didn’t earn it, someone is letting you borrow it – at a cost – and you have to pay it back (at a cost). When we begin to treat borrowed money as if it were our own, we baby step our way into big trouble.
And finally: remember who you’re dealing with. Shocking as it may be, credit card companies don’t exist for you; they exist for themselves. They are in the business to make money off of you and for no other reason. Clearly, whatever they’re doing is working: in 2008 alone, the 10 major US credit card issuers profited over Six Billion dollars (that’s six thousand million, by the way) (Source: 3). I’ll let you in on the secret of their success: you. Every time you make an interest payment or miss your monthly payment, they profit. In short: they want you to mess up, because when you do, they win.
And they’ll give me $100 towards a flight in exchange? No thank you.
By: Ashley G.