According to RAM Research's Card Web, a staggering $126.5 billion was put on credit and debit cards over this holiday shopping season. The bad news is that just 15% of that sum was placed on debit cards. The balance, and I mean that literally and figuratively, remains to be paid.
I'm not some scissor-snapping radical who thinks that all plastic is bad. The days of coins, stones, and donkeys as legal tender are fading fast. However, what is inconceivable to me is that a lot of people -- maybe even you -- fail to pay balances in full every month. You're more than willing to pay the average 18.3% in annualized interest and you're still living large and swiping larger.
RAM Research estimates that $50 billion was paid out in finance charges last year. That is the price penalty that we paid, collectively, because we had to have something before we could afford it.
It's amazing that there are countless millions of us paying the minimum on monthly credit card bills, without realizing that it will take decades to wipe that slate clean even if there were no more incremental charges.
Let me try to put this senseless practice into perspective. As a child, maybe you would try to walk up an escalator going down. Maybe it was fun. However, you don't see too many grown-ups trying that. They realize that it just doesn't get them anywhere. Step up. Slide down. Step up. Slide down.
Jane, please stop this crazy thing!
Finding a no-annual-fee credit card, especially one with cool perks like cash-back, frequent flier miles, or retailer rewards, is great -- as long as you wipe the balance clean at the end of every month. If you don't have the discipline to do that, sorry, your best bet is to take the card out of your billfold, snip it, and force yourself into making promises your bank account can keep.
Secured cards, where you prepay your spending limit, or debit cards, where the amount is taken directly out of your funded bank accounts, are viable alternatives. They make great training wheels if you find yourself falling on your face every time a conventional credit card solicitation enters your life (and enter they will -- a billion offers are sent out every year).
If that doesn't suit you, then I'm sorry, Veruca, you don't deserve what you haven't earned.
"Where is fancy bred? In the heart or in the head?"
-- Willy Wonka
I know, it's not right to boil this down to materialism. However, if materialistic pursuits are lapping your means, isn't it time to go cold turkey on the plastic before bankruptcy claims another debt magnet?
If spending habits are out of control then control the access to the spending. Cancel your credit cards. Create a system of checks and balances. Pay by checks. Pay off balances.
We offer some great ideas on how to manage your credit cards. From negotiating lower rates to transferring balances, there are many ways to improve your quality of debt life. But, ultimately, all that is borrowed must be returned. All the stock lessons that we have learned about long-term compounding are inverted when it is interest expense that is building up.
Credit cards -- can there be anything more unFoolish?
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