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Losing at Cards

Ron Wayne

QUITTING CREDIT CARDS might be more difficult than quitting cigarettes. I’ve done both. I’ve not smoked in 36 years. But it wasn’t until 11 months ago that I stopped charging on my credit cards.

I got my first card at age 15 from the biggest department store in my hometown. It was 1971, and my card’s limit was $50. The store was locally owned, so perhaps it was easier to obtain credit as a minor without steady income. But I think my mom also cosigned to ensure payment. I worked weekends at her catering business, and paid my bills from the income I made.

Fifty years later, I still remember that first piece of plastic in my wallet as I shopped at the Boston Store for clothes and gifts. And so began decades of using—and occasionally abusing—credit cards.

Amazingly, as a college freshman, I was able to get a BankAmericard, a predecessor of Visa. I remember being prudent with this card. It was helpful to have when traveling.

After I graduated college, I began working at my first job. That required me to get my own place a few hours from my hometown. I think that’s when my difficult relationship with credit cards began. My very low income made it hard to pay rent in a big city and still have funds for everything I needed—or wanted. That’s a distinction I didn’t always keep clearly in mind over the next four decades.

Emergency and necessary repairs are expected if you own a car or house. I often also needed a card for medical, dental and vision expenses, for my family and for me. These are needs that often can’t wait for the next paycheck.

But over the years, I certainly whipped out the Mastercard, Visa or American Express when I simply wanted something. Sometimes, you can say “no” to yourself. But when your child wants something, it’s hard to say “no”—even if you don’t have a lot of cash at the moment. Vacations also added to the credit card balances.

For decades, I always figured more income would be coming in, and then I could pay off these new debts. Personal finance experts say you should pay off credit cards entirely each month to avoid interest. I seriously don’t remember ever doing that. Almost half of all Americans carry a balance from month to month, with a $2,700 median amount owed.

Until 1986, you could deduct interest charged by credit cards on your income tax return. Inflation was high back then. I would rationalize that anything I wanted would be more expensive later on, so why not charge it now—plus it’s tax deductible?

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I’ve been able to quit adding charges since I retired, mostly because the pandemic has kept me home and cloistered. I haven’t left my city for 18 months. I didn’t eat out until last June, and rarely since then.

But I still see items in stores and online that I’d love to have to make my life more comfortable and enjoyable. Then I look at the credit card statements. I’m still paying off balances run up when I went 18 months without fulltime work, and during my four years in a job that paid 40% less than my previous position.

One of the best consumer finance laws passed during the Obama administration requires finance companies to tell customers how long it’ll take to pay off their card balance. Paying just the minimum will leave you in debt forever, believe me.

Another bad decision I made was to roll over debt from one card to another with a lower interest rate. It sounds easy but it’s tricky. I recall maxing out the new card with the old debt, but not having enough credit on the new card to fully pay off the old one. Now I had two cards to pay, and my available credit was on the old card at the higher interest rate. You’re in the same rut as before. You can get hurt by transfer fees, too.

I was fortunate late last year to find a card that had no transfer fees, and an introductory rate of 3.99% for three years. I transferred the high balance from another card and closed it out. I am trying to pay off the new card within three years.

Experts will tell you to try to negotiate lower rates with your existing cards. When I asked, the finance company wouldn’t do that for me. But since I closed my account, the company’s been sending me offers for new cards because my credit score has increased. I gleefully tear them up.

I realize I’m not getting rewards or points since I quit charging, but frankly I don’t consume that much. I will use credit cards for travel because there are many benefits. But I’ll also be sure to have an equivalent amount of cash in my credit union to pay off my travel charges right away.

Credit cards provide the illusion of free money that a bank is kindly letting you use. But that supposedly friendly gesture is an easy trap. Stay away if you can.

Ron Wayne spent 26 years working for newspapers in Pennsylvania and Georgia before becoming the editor in the University of Florida’s main news office. During his 10 years working there, he earned his master’s degree in mass communication and taught as an adjunct in the College of Journalism and Communications. Since retiring last fall, he’s enjoyed a simple life, including reflecting on his experiences on Medium.com.

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David Lamb
David Lamb
1 month ago

I think of my one credit card as a means of spending – the same as cash or a check – rather than a means of payment.

Roboticus Aquarius
Roboticus Aquarius
1 month ago

I think much of personal finance comes down to Socrates’ dictum “To know thyself is the beginning of wisdom.

Some people can use credit cards effectively and do just fine, for others it’s a minefield of epic proportions. The same is true for an equity-heavy AA vs a more conventional stock/bond split. The same is true for arbitraging your mortgage vs paying it off early. It’s less about optimizing your financial life than it is about avoiding the big mistakes.

We don’t need to master every aspect of financial wisdom, nor do any of them have to be optimized for us to succeed. We just need to know ourselves and build rules and systems that put limits on our worst propensities. As Charlie Munger says, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

I personally have a strong desire to tinker with my portfolio. So, I give myself rules, and a small amount of play money. These things help ensure I don’t make drastic changes to my portfolio; they reduce the emotional pressures that drive me to act to my detriment. By not doing stupid things, I often end up close to where I’d be by only doing smart things. It’s the big mistakes, the selling low and buying high, in my example, that would set me back the most.

All this to say: I find your solution to be wise.

Last edited 1 month ago by Roboticus Aquarius
macropundit
macropundit
1 month ago

All debt management comes down to discipline. I’ve used credit card debt in the 1% – 3% range (after adding fees) for quite a few years now. It is easy to dig yourself in a hole in any case, but it was discretionary. In other words, I could have taken the money from other higher interest sources I have available if I wanted to say I had no CC debt. But that would make no sense, since the best deal is the best deal no matter what you call it. I do plan to close them all down fairly soon, but on the other hand if the 0% nominal rates with low fee deals were to keep coming I suppose I might just be content to slowly reduce it over time. The debt has stayed fairly constant and as percentage of my portfolio it’s now so tiny it’s not a big concern.

Michael1
Michael1
1 month ago

Thanks for this open article. I see a lot of comments here by folks telling us all about how they handle their credit cards wisely. So do I – now – but there was a past in which I didn’t. Helpful for those who still don’t to see this story.

Bob Wilmes
Bob Wilmes
1 month ago

Credit card companies make most of their money from merchant discount fees and lose about 4 percent of their billings due to consumer bankruptcies and fraud. The reason merchants agree to pay the credit card fees is the merchants realize consumers spend more and the merchant is assured of payment. The whole system is finely tuned to consumers paying significant interest on revolving credit. Debit cards don’t pay the freight.

Getting hooked on revolving interest is so easy and difficult to extract yourself from. After the 1987 stock market crash, I paid off my Bank Americard VISA, and swore I would never again be hooked on credit. I remember one time I had a boxes of tools in my garage, but it took me months to save to buy a tool chest to orderly store my tools. The shock of the crash forced my wife and I to declutter our financial lives as well, and store our financial resources in an orderly manner.

Ginger Williams
Ginger Williams
1 month ago

I got my first card in graduate school and quickly got into trouble. I splurged on clothes and couldn’t afford to both pay my share of rent and make my minimum card payment. I’d watched my parents juggle bills for years, so that scared me into finding a second job. I worked in a maximum security prison for six months, in addition to a full course load and a part-time graduate assistant job that covered tuition, to clear that card balance. I also destroyed the card.

Ten years later, I opened a new charge card account. When I noticed that my balance was more than my mortgage payment, I analyzed a year’s statements. About 90% occurred on Friday or Saturday. I started paying off the week’s charges every Thursday night, which served as a great reminder to be thoughtful over the weekend.

I’ve deliberately carried a balance twice since then, both times when I had the funds to pay off the card. In both cases, I was in the process of a long-distance move for a better job, so didn’t want to deplete my cash. I moved, settled in, then paid off the card balances in a couple of months. It hurt, seeing those balances, and made me reluctant to charge anything for months.

Jeff Long
Jeff Long
1 month ago

People are either spenders or savers, and spenders will always have wants they must fulfill using plastic. If they receive a windfall or a refund, they think “what can I spend it on?” We had clients who already spent any refund when they came in. “People who understand interest receive it, and those who don’t, pay it.”

Ormode
Ormode
1 month ago

I have used credit cards all my life, and will continue to do so.
But I have never spent more than 50% of my income in any full year.

R Quinn
R Quinn
1 month ago

Interesting story and should be helpful for many people.

It seems to me the credit card thing is only the symptom of the basic problem for many, perhaps most, with credit card balances.

That’s the inability to set spending priorities and to simply not spend on wants that cannot be paid for.

These days I use credit cards for everything, including the grocery store. I do so for rewards. My wife and I share Visa and Amx cards and I get an alert with every use, I check the balances every few days to be certain there will be sufficient funds to pay them in full at or before month end. If not, we don’t spend the money.

If it weren’t for the rewards and convenience I would not use credit cards. Last week I used Amx points to buy a new set of golf clubs (after 25 years) and last year we used points for two first class round trip tickets to South America – truly free because we have never paid a penny in interest. Banks call us deadbeats.

Steve Skillman
Steve Skillman
1 month ago

Call me crazy, but I pay off two credit cards every morning, just after balancing my checking account. One all-purpose card boasts 2% cash back, and the other (with the same bank) is a gas card with 5% cash back. Everything is done online, and takes about two minutes.

With both comes the opportunity to pay up to 10% over the balance owed. Often I’ll do that if I know another charge will be posted in a day or so.

I like the idea of being debt-free. Plus there’s no bill to dread at the end of the month. Why not be a day or two ahead rather than months behind?

Last edited 1 month ago by Steve Skillman
booch221
booch221
1 month ago
Reply to  Steve Skillman

I have my credit cards on auto-pay.
The full balance is electronically transferred from my checking account to the credit card company once a month on the due date. All I have to do is make sure I have enough money in my checking account to pay it off. I’ve never paid a penny of interest this way.

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