Do you need a credit card?
No. No you don’t. Cut the thing up now!
I am an ex-owner of multiple credit cards. To be honest, I don’t really remember actively seeking them out. They found me!
As a young twenty something who had gone through a few rough financial patches the idea of a piece of plastic that could ‘bail me out’ if an unexpected event occurred seemed like a sensible idea. The paperwork was practically non-existent. All I had to do was sign on the dotted line and I had 3 credit cards within the week.
I had envisaged using the card only in situations like I needed an emergency spleen transplant. Plus they had all these amazing points that would save me money. What’s not to love? In 3 years if I spent lots on the cards I could have enough points to fly to Sydney.
They also waived the $110 fee x 2 (for my wife and I) and the $88 fee on the other card for the first year.
It got better. They even gave me 55 days interest free. If I was super clever and paid off the credit card at the 54th day, I would be one clever cookie.
The problem was that I did use it. Not a lot at first, but little by little. I also forgot to pay it back by the 54th day. It was hard to remember what product you purchased when too. We were also building and there was a lot of other costs associated. Putting it on the card earned us points. Subtle, subtle poor money management began to creep in.
At the end of two years we had nearly $25,000 on our credit cards at 18% per annum.
We eventually sold the house and moved somewhere more affordable. We cut up the cards and realised the hidden curse in a credit card.
So what do we use now you ask? Debit cards.
Debit cards have the exact same features as credit cards and you can use them exactly the same. There are no points though, but no fees either. No interest expense, but a small interest amount is earned.
The only catch, if you can call it a catch, is that you can only spend what you have earned.
This is budgeting 101. Only spend what you earn. This is the key to improving your savings potential.
I understand that some people could potentially use them to their advantage and capitalise on the incentives, BUT… the banks are banking on you losing out.
The average American owes $15,706 on their credit cards!
Cut them up!