Financial Contrarian #3: I’m Calling BS on Your CCs

Just about everyone knows a person that claims to “have a system” to win in sports betting, the lottery, and even gaming the credit card rewards system.

I don’t bet very often (like, never, knowing the astronomical odds stacked against the player), but I’d probably bet those people you know aren’t as successful as they put themselves up to be. These systems are all carefully calibrated to guarantee that you lose, at least in the long run.

They’ll throw you a few bones along the way to make you feel smart or “lucky”, but they’re all sucker’s games. If you play that game, pretty soon you’ve got it all going on-too many cards to pay off, rising interest rates, and mounting interest charges. You’re like that person who turned into a fly and got caught in the spider’s web.

Credit Cards and Gambling?

You might ask, “Why lump credit card rewards in with such blatant forms of gambling?” Well, there are similarities. The credit card rewards systems are cleverly designed by behavioral scientists (the evil ones) to take something that would previously trigger negative receptors in our brains (spending money) and turn it into something exciting and pleasurable. You’re distracted from how dumb the purchase you’re about to make is by thinking about how great it’ll be to get those points or miles (which most of you will probably never use).

Psyched Up

Rewards junkies will insist that credit card rewards are a viable revenue stream. But behavioral studies have shown (and I’d argue it’s common sense) that people spend far more than that 2% (or whatever) cash back when using a credit card (especially with the points/miles lure) than when using cash or a debit card.

The lure of the reward (cash back, miles, etc) is enticing you to spend more. That’s a fact, Jack. You’re being played. Credit cards are the most marketed product ever-$4 billion per year. There’s a reason for that. Fight back.

Outliers

Sure, there are some who take this to extremes and do well, like that guy on the news who lives on airplanes, flying all over the world. Those examples are just like the lottery winners that are paraded onto your screen holding up giant fake checks. Those who want your money want you to see those very scant winners, want you to visualize yourself “winning” and don’t want you to see the vast legions of losers hidden from sight.

Winners?

I’m not crapping on the folks who do this for a living, like the airplane guy. Do you really want to invest that much time and hassle into something with such a small payoff? Have you thought about the cost/benefit ratio of investing that time and effort into something with more direct returns, such as your career and relationship?

Again, the game is carefully rigged against you by those very smart scientists and actuaries.The work it takes to do it right works out to a very low hourly wage. Invest in a more sure-fire thing, like paying off your debt

Consider other behavior aspects of using credit cards (and even debit cards). You walk up to a register to grab a small purchase but don’t want to face the glare of the clerk for using a card for a low amount. So you buy something else to pad it up a bit, like a candy bar (that you probably didn’t need either).

Check out any survey or book on millionaires. Financially well-off people didn’t get that way by using rewards cards. Mark Cuban says it’s the dumbest thing you can do if you want to be wealthy. There are something like 22 trillion unused miles out there from this scheme. And if you do use them, what will you do when you get to your vacation destination? Right, load up your card. They freaking own you, bro. Got you coming and going.

Irresponsible Use

Those who use and pay off their cards every month are considered ‘responsible users.’ My wife and I have been doing that for years. “Hypocrite!” you say. I’ll get to that below.

Anyway, if you’re only making minimum payments, you’re um, not a responsible user. You’re being very irresponsible and you’re paying the maximum interest over time. The card companies love you! They love taking your money. If this is you, get off the credit card crack. You can do it. Work your debt snowball until it’s gone, do what you have to do to make it disappear little by little. Cut up the cards, do some plastic surgery!

Enter the Hypocrite

I used to disregard articles like this one, because I considered myself a “responsible” credit card user. I paid my cards off every month. I felt I was playing them. I figured they didn’t care, they accept the few smart ones like me because we’re in the minority. I took the free money into my account from the cash-back rebates.

But I felt inside it was wrong. You’re always paying next month for this month’s expenses, and that’s also part of the motivator to spend more. You track your statement closing date to time new purchases. “If we time it right, honey, we won’t have to pay for this for two months!” It becomes a stressful game with no gain, since after a month you’re always paying each and every month anyway. It makes budgeting a pain as well.

So, we finally took the leap. We put the cards aside, canceling the smaller store cards completely. We’d only been using one cash-back card primarily, with a second for backup. We’ll cancel the others after doing some work to gauge the impact on our credit score. We don’t have that many anyway.

Friction

Stores like Amazon want you to have low friction when buying. They want the impulse to rule and the money spent before you have time to think. That’s why there are links that say “Buy now with one click” on web pages, and buttons you can stick all over the house to order supplies with a push (hint: put those above the toddler’s reach so you don’t start getting detergent delivered every day). You can even buy stuff by walking into a store and waving your phone around like a lunatic.

My wife and I now use the debit card and cash exclusively. It’s phenomenal how much more thought you put into a purchase when you know it’s coming directly out of your checking account and there’s a little more friction when you buy!

You will truly spend less this way, and hence end up far more well off than that measly cash-back would have made you. Our life is now simpler and less stressful in many ways. We only have to reconcile one account. Our budget is truly for this month, not a mix of this month and last month’s expenses.

The hardest part was that one month or two when you are paying immediately for your expenses, as well as last month’s expenses looming over you in the form of a credit card bill (or bills!). To make the leap, budget for that by beefing up your emergency fund or checking account.

Just Say No. Be a Winner.

Which leads me to my point. Don’t be played. Cut the cards up. You’ll save more. Put that money in a jar instead, and every once in a while pay off another debt or save it. You’re guaranteed to win!

These blogs are just my opinion, and you know what they say about those. If you need help paying off your debt, head to our contact page and begin your journey to BE. DEBT. FREE. Schedule a free fifteen-minute call, we’d be happy to help you.