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Cut all your credit-cards in half
Monday, 5 June 2006
I've never owned a credit-card. Most people are pretty surprised when I tell them that. They look at me like I've just said I've never had a glass of Coke or made a phone-call.
According to CardWeb, a service that tracks credit card statistics, the average American owed about $8000 to credit-card companies in 2001. Of course, that's spread over a lot of different people. Some don't owe anything and some owe lots. What's obvious though, is that many people fall into the latter category.
Personally, I've never seen any reason to own a credit-card. To tell the truth, I can see no good reason why anybody should own one.
Using credit-card debt to pay for things you can't afford is a little like using heroin to make you feel better. It's pretty much guaranteed to have a negative effect on your life.
Banks and finance companies love giving out credit-cards. The default rates on them are pretty low and the interest rates are really juicy. Why do you think you get so many offers for them? Because they're very profitable, that's why.
But ignore the siren-songs of those companies and follow this simple rule for any consumer goods you want - if you can't pay cash, don't buy it.
Many people hear this rule and think: "But if I don't have a credit card, I can't buy as much stuff".
In fact, the opposite is true. If you pay cash for everything, you can buy more stuff. The money you would have spent paying the interest on your credit-card can be spent on shoes, holidays, cars, or anything else that takes your fancy.
If you're a spendaholic, being without a credit-card makes you better off. You can spend more! It's simple really.
Some people get pulled in by the status of having a fancy credit card. They like the feeling of superiority they get by taking out a platinum piece of plastic in front of their friends. They think it says they're part of the elite.
Not to me. A platinum card just makes me think someone's an elite sucker. And I'm sure many others feel the same way.
Many people get tempted by the frequent-flier points and gift programs companies attach to their credit-cards, but they shouldn't. These are the equivalent of a casino giving out free drinks. The only reason they're offering "free" stuff is because they know, from vast experience, that they're likely to make back far more in interest than they'll have to pay out.
Of course, some people manage to pay off their credit-cards and get the points. Lucky them. You can bet those people are in the minority though or the finance companies would cut their frequent-flier programs quick-smart.
For most people, trying to walk the tightrope of getting points and avoiding the debt probably isn't worth it. Having credit in such easy reach is just too tempting. It's a little like looking at people who can smoke the occasional cigarette without becoming addicted. There's no guarantee your willpower will be as strong.
Don't make the mistake of being over-confident.
Of course, just to operate in today's world, you need a credit-card number and expiry date of some kind. Without one, you can forget about buying most stuff on the internet or renting a car. But there's an easy solution to this problem which is available in most countries.
It's called a debit-card.
I've had one of these little babies myself for the past twelve years. For those who don't know, they're basically a credit-card that's linked to your savings account. When you buy something with it, the money's taken directly out of your savings. If you've got no money, you can't use it.
So reach into your wallet or purse right now, pull out any credit-cards you've got, and hack them to pieces with a pair of scissors. There's really no reason to have one at all.
Then start looking around for a debit-card instead. Your finances will thank you for it.
Oh yeah, and you'll be able to buy more stuff!
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