I have to admit that I’m very lucky. I had a father who taught my sister and I the basics of finances from an early age. When we turned 16 (we’re twins), he gave each of us our own credit card so we could establish some credit in our name, and told us he would pay $100/month towards the balance and no more. I think the credit limit was something like $1,200. I really had no idea about credit cards or how they worked. It just felt like free money (newsflash to those of you who still think credit cards are essentially free money—they’re not!), so I racked up the balance in probably a month or two, and the balance remained at $1,200 until my dad paid $100 every month. Then, I would inevitably charge $100 worth of things as soon as the balance was paid (I would never go over, I had some discipline and was probably a little afraid that Dad might get mad, which he would have), and would then wait impatiently for dad to pay the bill again. So, I was effectively taking $100 (more like $75 when you consider interest rates, but we’ll get to that later) from my father every month to spend on whatever. But this was a good way for me to get my feet wet and to develop an understanding about financial limitations. He never budged on paying more than $100 a month and he did this all through college* until the day I graduated. I still knew nothing however, and was simply continuing to take money from Dad; this was just more of a formal kind of way of doing it.
*Dad made clear from early on that once I graduate from college, my sister and I were expected to financially support ourselves. He helped me out for the first few weeks as I searched for any job I could find, and has always been there to help along the way. But I couldn’t find any work when I first graduated so I took a job at a grocery store across the street from my apartment, just to have some money coming in. I knew Dad was serious when he said he was cutting us off, and it wasn’t to be cruel, but to teach us how to live like adults. This was the beginning of my lesson in “If I can’t afford it, I can’t have it.”
The other thing I learned from Dad about credit cards was that they are fundamentally evil. He drilled that in my head very early on, and I can’t say I disagree. Here are a couple of quick tips about credit cards that you should stick to without question:
- Don’t ever have more than one credit card
Actually, that’s pretty much it. Stick to that, and you are way ahead of the game.
Image obtained from HERE
THE WAY CREDIT CARDS WORK
Let me back up and break down for you the way credit cards work, because no credit card company is ever going to advertise or explain this to you. They are literally in the business of making money off of you and they don’t want you to know that credit cards are basically a scam, meant for you to lose. You will lose every time. It’s a lose-lose situation between human beings and credit cards. You will never be in the positive and will always be in the negative.
[Ok, there are exceptions to this, but please don’t read into these, and in general, try to disregard. These exceptions only work for people who are incredibly financially responsible, have a good cash flow, and deeply understand the art of not purchasing more than they can afford. And if you are reading this article, chances are that you might not fall into any of these categories.
I have a friend who understands the way credit cards work and uses them to her advantage when it comes to points and miles. You can definitely use credit cards to earn points for traveling and other things, and this is probably the only benefit to certain types of credit cards. However, if you have any kind of weakness in terms of spending, financial discipline, shopaholism, or any other form of this, I wouldn’t play around with credit cards in this way. She works the system to a tee and never falters, and this is the only way to do this.
Credit cards are also a bit safer when it comes to fraud protection, so if your identity has been thieved, switching to credit cards will probably protect you and your assets a bit more than if you continued to use a debit card that draws directly from your bank account.
Finally, if you have your credit card under control, you can establish good credit for yourself, which comes in handy when purchasing a car, a home, or taking out any kind of loan. However, there are many other ways to establish good credit for yourself and you don’t need a credit card to do this.]
I am also not saying that you shouldn’t have a credit card and that you should just stay away from them all together. If you keep your balance low, you will have a good credit score for the most part. Also, most people, unfortunately, live check to check, and a credit card is very helpful, if not necessary, for emergencies, when you simply don’t have the cash. So, if you need to discipline yourself, look at credit cards as an EMERGENCY ONLY option, and know that this money must be paid back sooner rather than later.
Image obtained from HERE
We all know that money does not grow on trees. Of course we know this. When the financial crises of 2008 happened and my father suffered financially like many others; for the first time, I realized that I couldn’t go to him for help, even if he wanted to help me, and that I needed to establish complete financial autonomy. And I have to admit that up until that point, there was still this part of me that kind of had this idea that money sort of grew on trees, by way of my father, and that there was some sort of endless supply of money at my fingertips. And I had a lot of financial knowledge under my belt by this point, and was for the most part, completely financially independent of him. But I still slipped into that frame of thinking at times, usually without even realizing it. But for those of you who haven’t even had a crash course and/or were never taught how to manage your money, I can’t imagine that there isn’t some part of you that sort of harbors the notion that money kind of, sort of, might grow on trees, perhaps by way of credit cards.
Credit card companies make money off of you. Why else would they do it? They aren’t just trying to be nice. In a capitalist society, unfortunately, no business trying to make money gives you something for nothing. Credit cards give you the illusion of money, but at a price. Why do you think it is so easy for you to open a credit card? Why do you get multiple credit card offers in the mail every month? They want your money. That is all.
A credit card company is basically loaning you money that you don’t actually have. You have no money when you open a credit card. You are using their money. And every time you use their money, which is every time you charge something, you pay a fee. So, when you pay your bill at the end of the month, you are not paying them back fair and square. If you buy $276 worth of shit during the month of July, and you make a payment on your credit card of $276 (which most people aren’t even paying back the full amount* and can’t afford to, otherwise, they would have just used cash), you are not actually putting $276 towards your credit card balance. You are probably putting more like $250 or less depending on your interest rate. So, your credit card company just took $26 from you that you will never see again. You already spent $276 on shit you didn’t need right? And you thought you were being good by paying it back. But credit cards charge interest and this is how they make their money off of you. So, you actually end up paying $302 ($276 + $26 interest) for that shit that you didn’t need in the first place. It doesn’t seem like that when you pay your bill, but do the math. If your interest rate is above 0%, you’re losing money with a credit card, without exception. If you think you’re broke but you really want that $276 worth of shit, you must know that if you use your credit card, you’re going in the wrong direction. You’re making yourself more broke. And when you pay your bill, that money that you pay your bill with is coming out of your bank account. That’s the actual money you have earned. That is the money you should be coveting and managing. But when you involve credit cards, now you are literally throwing that hard-earned money away. It doesn’t seem like much. What is $26, or what is 12% interest? But if your balance is high, those interest rates add up and you will soon be at the point where that few hundred dollars that you throw at your balance every month, will NEVER make a dent in your debt. You won’t be able to keep up. The money you put towards your balance will be consumed by interest. So, if you pay $500 towards your balance every month (good for you!), but your balance is $20,000, that’s like throwing pennies into a violent river.
*It goes without saying that if you just pay the minimum amount due on your credit card, you will definitively never pay off your balance. Don’t ever just pay the minimum amount. Your credit card company wants to keep taking money from you and they make more money off of you the higher your balance is (the interest rate plays off of your balance amount), so they suggest a ridiculously low minimum amount to keep you in the game. Ignore that amount and pay as much as you can. The goal is $0 balance.
© Libby Saylor
Credit card companies tap into a very dangerously fragile part of ourselves and exploit it with vigor. Every human being has an emptiness within. It’s part of being human, and our path in life is to find ways to heal and fill that emptiness with healthy and loving materials and methods. It’s okay to have emptiness and sorrow within, but most of us feel too uncomfortable confronting those deeply painful and icky wounds. So instead, we find all kinds of ways to fill that hole of emptiness. Money, material items, and financial limitlessness are very real ways that many people attempt to fill that painful hole within their own souls. Credit card companies truly understand this and it is your job as a human being to manage that, take responsibility for that, and refuse to allow yourself to be exploited in that way. The truth is:
- You don’t have as much money as credit cards make you think you do. You only have what is in your bank account (or other savings).
- If you have any kind of balance on your credit card (or any debt in general), your financial worth only amounts to how much you have MINUS your debt. So if you have $20,000 in life savings, and you owe $15,000 in credit card debt, you are probably in the red once you have paid off your debt and accounted for all of the interest that you will have to pay on that debt. Therefore, you may very well have no financial worth. And you are not capable of having any actual wealth until you are debt free.
- You absolutely 100% buy things you don’t need and can’t afford
- If you spend more than you have in your actual bank account on a regular basis, by way of credit card or other avenues, you are broke and are going in the wrong direction
- This hamster wheel of insanity will not cease until you make some major changes
Don’t worry. There are ways to deal with out of control credit card debts and stop the bleeding, but you have to get very serious about it in order to get it under control, and you will have to be patient. Depending on your level of debt, it may take years to get a handle on it.
If your debt is out of control and/or you identify with any of the bullet points above, the first thing you need to do is stop the hemorrhaging and put fierce and instant pressure on the wound. You can do this by either taking out a loan with a bank (if your debt is in the frighteningly high tens of thousands, or more) or by rolling over your balance to a new credit card with 0% interest.
Apologies for all of the boring yet effective stock photographs in this post.
If you take out a loan with a bank, they will most likely keep your interest rate low and controlled so you can manage paying off your debt. When you take out a bank loan, that bank is essentially inheriting your debt from the credit card company and agreeing to offer a more stable rate of interest in order to aid you in paying the amount off in full. They will do this for you because they are still making money off of you, even if it’s 3% or something like it (shop around at different banks and take the one that offers the lowest rate), and banks are much more reasonable when it comes to this kind of thing. You can at least have your debt managed and ultimately obtain a $0 balance on that nasty credit card of yours. Maintaining a $0 balance on your credit card will also increase your credit score.
If your credit card debt is bad but not too scary (between $3,000-$15,000), depending on your income, you can roll your credit card balance over to a new credit card that is offering 0% interest for an extended period of time (you have to have a steady and moderately decent income to pay off this balance, even with a 0% interest rate, but this is doable*). Every credit card company offers this and it doesn’t exactly matter which one you use. It’s best to switch companies when you do this, just to make a clean break. I switched from Capital One to Citi when I rolled my balance over and that worked fine. Ideally, you can find a credit card deal that offers 0% for something like 18 months. Others offer 12 months, but 18 is better and gives you more time. That’s 18 months of opportunities to pay off your debt fair and square, mono y mono, no secret fees and no hidden charges. If you pay $250 towards your balance in July, that’s $250 closer to $0 balance and it’s thrilling and lovely to experience after you have been drowning for so long.
*If you need some specific numbers in order to better gauge your situation, I had a credit card debt of around $3,000 and rolled the balance over to a new credit card that offered 0% interest for 18 months. I could only afford to pay about $150/month (I did more on the months I could manage) and was able to pay off most of my debt, by the end of the 18-month period. ($150 x 18 months = $2,700, getting my balance down to about $300).
YOU CAN DO THIS!
This is a long and complicated topic, and money and finances are incredibly complex and diverse, laced with emotions, family backgrounds, and so many other things. However, I have found that only when I had to go through this kind of muck, sorting things out and really strapping down, disciplining myself, and ultimately giving up on buying things I couldn’t afford (it essentially comes down to letting go of that thing you think you want to buy that you think will make you happy, learning to go without, and finding healthier ways to fill the emptiness–it’s hard work), did I truly learn how to be financially responsible. And it feels so, so good once you are on your way through that tunnel of darkness, moving towards the light.
Imagine your life with no debt. And then imagine that all the money you earn goes towards accumulating wealth. And then imagine once you have some wealth under your belt, you can start building on your savings and you can establish true financial freedom. If you establish enough balance in your financial life, you can even buy that thing you want or take that trip, with money that you actually earned, that you actually have. Every wealthy person will tell you that they don’t spend what they don’t have. It’s very basic and very powerful. Don’t spend what you don’t have. If you don’t have anything to spend, then you have to go without until you do. And that is not a bad thing. It’s a different way of living and it’s healthy and whole. It can be done. You can do it. It’$ worth it.
This post contains information about financial management, and although I do consider myself financially savvy, I am in no way an expert and do not claim to be. Every person’s choice about financial wellness is explicitly his or her own, and these are my thoughts, opinions, and feelings about finances based on my own personal experiences and knowledge. Take what you like and please leave the rest.