In today’s financial landscape it seems unthinkable not to have a credit card or at least a debit card. But simply because they’re so ingrained in our day-to-day lives doesn’t necessarily mean they are good things. Credit cards have significant and severe consequences that society as a whole largely choose to ignore. Here are some reasons more and more Americans are choosing to not use credit cards.
Let’s be honest: who doesn’t like a new toy? When your new credit card pops up all shiny and new from the mail, it’s only natural that you want to use it the same way as if you got a new lawnmower or crockpot. But using a credit card entails spending money, and it becomes tempting to buy something you don’t truly need just because you want to use your new toy.
One of the most dangerous aspects of credit cards is that they create a disconnect between buying things and spending money. This fosters a false sense of how much spending power you have, and place a distance between you and the hard reality of incurring substantial debt. Credit card companies rely on this debt trap to reap huge profits from American consumers, with recent statistics showing the average household carrying over $6,500 in credit card debt.
Let’s start this point with an example: most of us wouldn’t actively seek out the answers to cheat on a test, but if the answers were right there next to us on the desk, how much harder would it be not to cheat? Credit cards provide the same temptation as answers on a cheat sheet. Instead of being responsible with our spending and saving for a purchase when we cannot afford an item, credit cards offer the instant gratification that appeals to our most base instincts. While it may be pleasurable in the moment, the reality of the situation quickly becomes apparent as the monthly balances start to arrive.
Many credit cards offer a zero percent interest rate during an introductory period, but that’s only to encourage you to transfer balances from other cards and lull you into a false sense of comfort in spending freely with your new card. Once the grace period ends, the interest rate can increase substantially, and if you miss a payment or pay late, you not only incur a late fee but your interest rate will defer to the default rate, which can be as high as 30% APR.
The next step in the endless cycle of revolving debt is that you’ll start applying for more new cards to use their introductory 0% interest grace periods to transfer money from your growing number of other cards. It’s not a bad financial decision in the short-term to transfer balances between cards like this, but it’s unsustainable in the long-term: at some point, banks will stop approving you for new cards, and that’s when the piper comes calling.
What’s the final consequence of the cycle of credit card debt? In most cases, your credit score will be severely damaged by late payments, a high debt to income ratio and defaulted accounts in collection. Bad credit will prevent you from financing a vehicle, purchasing a home, opening a utility account, being approved for a rental property or even opening a wireless account. It’s at this point many individuals begin to understand the true cost of irresponsible credit card use and how very limited their options are moving forward.
Aside from irresponsible spending and poor impulse control, one of the most common reasons for incurring large amounts of credit card debt is a lack of financial planning. Not having a working budget often leads to over-spending, which can leave you short on funds for essentials like bills, rent or groceries. It’s far too easy to simply swipe a card in situations like this, and even more so during an unexpected financial crisis. Something as simple as having an emergency fund of $500 to $1,000 in savings could help you avoid falling into credit card debt.
Unfortunately, the majority of Americans do not have enough in savings to cover even a minor expense, so what can you do if you get hit by a sudden financial emergency and don’t have the cash on hand to handle it? Doesn’t it make sense to have a credit card just in case that happens? Well, if an emergency does hit and you do need quick access to cash, an auto title loan is just as fast and easy to get money from as a credit card, and it comes with significantly fewer strings attached, making them a strong alternative.
As friendly as they portray themselves, credit companies aren’t non-profits, and they’re not looking out for your best interest. The whole business model of a successful credit card company hinges on people not being able to pay off the full balance of their debt each month, and that alone should make you suspicious.