Much has been written about the deceiving practices of credit card issuers and our government’s newfound desire to closely regulate them and make it harder for them to continue. In my opinion, some banks and bankers (like some politicians) are bad, greedy, and in need of some adult supervision. Most, however, play reasonably fairly, especially when considering the risks they take in voluntarily lending money to people they barely know.
So rather than focus on the periodic mischievous practices of the banks, let’s discuss the five lies we tell ourselves about credit cards, which are far more dangerous to our long-term financial health. After all, we can’t count on the government to protect us against thoughts in our heads, can we?
Lie # 1. I can afford the big screen television, cruise vacation, lifetime supply of organic milk—just not now.
If you can’t afford the purchase right now without financing with your credit card, you can’t afford it. Period. While this doesn’t necessarily apply to big ticket items like a car and a house which will have unquestionable value a month from now, the logic holds for virtually everything else. Some people convince themselves that a credit card is a tool allowing themselves to re-define what it is they can afford. As such, they buy things that they honestly believe they can afford before they actually have the cash for the purchase. But it’s a big lie: if they could afford it, they’d have the cash to pay for it.
Lie # 2: I have a great rate—like 0 percent APR—so I’d be a fool not to use the card.
Wrong again, smart guy. There’s a reason why banks give you such generous rates and it’s called profit. Sure, they forgo some of the profit in the beginning while you rack up charges during your “teaser” period. But, after the teaser period expires and your rate goes up to some astronomical level, they make it all back and then some. Remember, same as cash is not the same as paying with cash.
Lie # 3: The reward points totally make it worth it.
After a few months you might, indeed, have enough points for a free airline ticket. Furthermore, after several hours on fourteen different Web sites navigating dozens of blackout rules might actually leave you with a mid-December red-eye trip to Des Moines. But how much in interest charges, annual fees, and other miscellaneous expenses will you pay along the way? I’ll give you a hint: it’s almost never a free ticket. (That tee-shirt you got when you signed up wasn’t really free either by the same logic, now was it?)
