American's are addicted. No, they aren't addicted to drugs, but they might as well be. They are addicted to what some refer to as "consumer cocaine."
If you don't want be one of the barely surviving, collecting shopping carts at Wal-Mart in your retirement years, you need to change your financial behavior now. You must intentionally leave the 96 percent crowd that's headed for financial dependency and actively move toward the 4 percent who achieve financial independence. Obviously, the first step is to stop making new debt.
The best way to stop yourself from making new debt is to eliminate the credit cards. They are killing you financially. You have to do it. There is no way around it. It is perhaps the most emotional but crucial component to getting debt free.
I know, I can hear it now, "I don't need to cut them up! I just won't use them anymore."
Well would you:
In fact, I agree with John Cummuta when he calls credit cards Consumer Cocaine.
They're pushed like drugs, and people use them like drugs. If you're anywhere in
the vicinity of credit worthy, your mailbox is regularly populated with credit
card offers, and these offers seduce you with low-interest or even no-interest
introductory periods. They are designed to give you the impression they're
offering FREE Money! But these offers are no different from the schoolyard
pushers who offer kids free samples to get them hooked. Credit cards are pushed
like drugs.
And credit cards are frequently used like drugs. You've had a tough week at work,
and you deserve a treat, so you stop at the mall (a crack house for credit
junkies). You slap down the plastic and give yourself a quick feel-good. But then
when the bill comes in, you feel bad so you go back to the mall for another
feel-good. Of course that makes the next bill go up even more, so it will take a
bigger feel-good to overcome the hangover from the last one, and on the cycle
goes…just like a drug addict. It's scary.
But the analogy doesn't end there. Just like with the schoolyard drug pusher,
once the introductory period is over, up pops the interest rate and you're
forking over more and more of your hard earned dollars to the coalition.
If you have a strong stomach and a good magnifying glass, read the fine print on the next credit card offer you receive. Look at what happens to the interest rate after the introductory period. Then look at the interest rate for cash advances. Then look at what happens to the interest rate if you're late with just one payment. Then look at some of the fees they'll charge you for using the ATM or if you make a late payment, bounce a check, or make any other possible mistake.
Yes, credit cards are consumer cocaine. They're pushed like drugs, frequently
used like drugs, and they have long-term punishing effects like drugs. A drug
habit cannot be “managed” and neither can a credit habit. Credit usage diminishes
your financial health, so – like illegal drugs – it should be avoided not managed.
You need to learn how to eliminate credit from your life. Once you're debt-free, you'll never need credit again. If you want to buy a newer car, you'll just trade the one you own and pay the difference with cash. If you want to move up to a better house, you'll just sell the one you own free and clear — maybe take a
little additional money out of your swelling investment account — and buy your
new house with cash.
Once you've paid off your debts, you'll be able to save up in a few months an
amount equal to what any credit card would likely offer you as a credit line. And
it will be your money. Money you can use without any interest costs. And while
it's in your accounts, it will be earning you interest. Compound interest will be
working for you rather than against you.
That's how it works when you eliminate debt. When you just manage debt, you stay
in the 96 percent group along with all the other financial failures.
"You can likely be debt-free in just 5 to 7 years", says Cummuta. However, you must change your spending habits today. You cannot keep inuring more debt, and get debt-free.
I'm genuinely curious as to how to explain financially successful people who use credit cards all the time (my father in law) and broke people who don't even own a single credit card (my father).
ReplyDeleteI'm one of those that use credit cards to my advantage. Pay them off and collect the 5% discount on food, gas, and pharmacy purchases. Add up how much you spend on that for a year and you'll see that 5% is a good chunk of change that can be saved for free.
ReplyDeleteThe analogy breaks down when a group of people can use them to their advantage. Have you met a habitual cocaine user who is benefitted long-term by the habit?
I'm not so sure that credit cards are addictive to everyone as drugs are.