VOL. 127 | NO. 130 | Wednesday, July 4, 2012
Rays of Wisdom
Dana and Ray Brandon
Credit Card Companies Want You in Debt
By Ray and Dana Brandon
Ray’s Take The very last thing a credit card company wants is a customer who carefully pays their balance in full and on time and avoids having to pay any of their interest and small print penalties and fees. The companies that issue credit cards usually have the words “for profit” in their charters, and they want you in debt – the deeper the better. They certainly are successful at keeping us that way: the average American family carries some $8,000 in credit card debt, and they’re paying some of the highest interest rates that legally exist.
That conveniently small minimum payment you see printed on every credit card statement is a visual enticement to get and keep you in debt. It practically begs you to put off payment in full until that raise, bonus, or whatever comes around. Of course, by then the double-digit interest will have mounted up substantially and the credit card company will have you looking at a debt that could take years to pay off, adding on more and more high interest all the while. Before you know it, the interest you have incurred far exceeds your actual purchases.
Then there are all the fees you can incur: not just the annual fees but late fees – for paying just one day late, you’re paying over-your-credit-limit fees, cash withdrawal fees and foreign transaction fees. Credit card companies also have the right to change your interest rate. If you take a misstep you can count on your interest rate going up – not only on your new purchases but on your entire balance.
Credit cards are a necessary modern convenience. How you handle them is up to you. You should be sure you have the money to pay for the charge before the card ever comes out of your wallet. They can provide perks and convenient accounting or lead you into a life of indentured servitude. Credit card companies didn’t grow to be a multibillion-dollar industry by simply facilitating purchase transactions. They grew huge by getting and keeping people in debt.
Dana’s Take If you have children or teens, they are watching your money habits. If their parents never use cash, they won’t expect to either. Cash gives children, teens (and adults) a better sense of where their money is going. It’s also a math lesson for younger kids in how to make change.
Start the money conversation at any age. If you have credit cards, include your kids and teens in the bill paying process. They will better understand the full payment cycle. Tell them how you feel about credit, even mistakes you may have made. Help them understand that “credit” really means debt. Maybe even refer to the plastic cards as debt cards.
Debit cards still look like plastic money to kids. If they’re old enough, ask them to help you balance your checking account. They will see that every swipe of the card is money out of the family piggybank.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.