Today Is the Day to Cut Up Your Credit Cards
Let Freedom ring
Let the white dove sing
Let the whole world know that today
Is a Day of reckoning
-Gretchen Peters
CNBC superstar Maria Bartiromo, Fox Business News host Dave Ramsey and myself have one thing in common: None of us have credit cards.
When three people who know about money go to the extreme of not owning any credit cards, others might want to take note.
Credit cards play the ultimate sucker game with consumers. They know everything about you. No matter how strong you are they are going to keep trying to tempt you.
100 percent of people with credit cards tell me that they pay off the balance of their credit cards each month
Since the Federal Reserve Study of Consumer Finances says that 60.3 percent of credit card holders have a card balance, it means that many people are living in fantasy land.
Credit card companies know how you spend, where you spend and what you spend it on. They know what times of the year you are looking for extra cash and situations where you might blow through your budget. You give them that information every time you use your card.
Since Maria, Dave and I don't have cards, we make that information about us tougher to find.
Joe Nocera’s 1990 book, A Piece of the Action is one of the greatest business books ever written. It is the history of personal finance and credit cards. Nocera wrote about Andrew Kahr, who got Household Finance in the credit card business and was the founder of First Deposit Corporation (which became better known as Providian). Kahr had a knack for using mathematics and marketing techniques to find people who would never pay off 100 percent of their credit card balance. His companies made a fortune, like all credit cards companies do.
It never ceases to amaze me how many people think they are smarter than the credit card game. It reminds me of people who are trying to outfox casinos.
Christina Binkley's book about casino companies, Winner Takes All, talked about how casinos like Harrah’s, used their "rewards card" system to track the gambling habits of their customers. If a casino can track your spending habits, imagine what a credit card company can do. Las Vegas was built on a lot of people who thought they were smarter than the odds makers. I see the same mentality with credit card users.
I have the same conversation often. People defend their credit card use and say they “pay off the balance” or “make a killing in rewards points.” I've had the exact same conversation with people who tell me how they are beating the casinos by getting complimentary food, drinks and rooms. I've never seen a profitable business give away more than they take in. Casinos and credit cards companies are two of the most profitable businesses around.
People tell me they are paying off their credit cards every month. I suspect they sincerely believe it. The hard data says otherwise. Someone is part of the 60 percent of Americans who currently has a balance.
People need to go back through the last couple years of statements and verify that it is true. Usually when I have people do that, they find an occasion or two where they "slipped up."
Sometimes that "slip up" lasts for years or decades
Many of the people who believe that they are paying off their credit cards also have car payments, furniture loans and second mortgages on their homes.
I don't have those and I doubt Dave and Maria have them either. Most debt is bad debt but credit cards are the most insidious of all.
I suspect the anonymous nature of obtaining credit with far away banks helps contribute to a lack of accountability.
I've always done my banking with small town bankers who I personally know. I had to look them in the eye and tell them what I was spending the money on.
It was often an uncomfortable but valuable experience. Sometimes bankers would talk me out the loan or tell me I couldn’t afford it.
An officer in a consumer loan company once told me that they focused on small towns and rural areas.
People in small towns would do what it took to pay their loans as they did not want to lose face with their neighbors.
You don’t lose face if your “bank” is the South Dakota branch of a New York bank and the collectors are located in India. It makes it easier to take on more debt than you can handle.
Small town bankers taught me the skill of money management and discipline. None of them tried to tempt me with “cash back” offers. None of them tried to hit me for 24 percent or 36 percent in interest either.
Most credit cards come from “too big to fail” banks. The same ones that we, the taxpayers, bailed out. If you look at the list of the top credit card issuers and look at who got bailout money, they are usually the same names.
You may not see the bankers in person but they know a lot of about you. Or they think they know a lot about you. The banking collapse and bailouts proved that the bank’s didn’t know us as well as they thought they did.
They only know how to sell us on their products. They do that extremely well.
Knowing a customer and knowing what touches his or her hot button are two separate issues.
The only way to keep the companies from acting like Big Brother is not to give them the information to start with.
That was a conclusion that Maria Bartiromo, Dave Ramsey and I came to some time ago.
Today is the day to cut up the cards. Today is the day to stop letting “too big to fail” banks hit you for outrageous interest and fees. Today is the day that you stop the card companies from tracking your spending and what restaurants you eat at.
Today is the day when you proclaim your freedom from credit card overlords.
Let me know when you do.
Don McNay, CLU, ChFC, MSFS, CSSC, is one of the world's leading authorities in helping injured people and lottery winners deal with complex financial issues.
McNay is also an award winning syndicated financial columnist.
He founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983. The company's primary office is in Richmond, Kentucky.
McNay has Master's Degrees from Vanderbilt and the American College, is in the Eastern Kentucky University Hall of Distinguished Alumni and has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery
You can write to Don at don@donmcnay.com or read his column at www.donmcnay.com. You can reach him on Facebook at www.facebook.com/donmcnay and Twitter at twitter.com/Donmcnay
McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.
Follow Don McNay on Twitter: www.twitter.com/Donmcnay
Jim Randel: Mixing Public and Private Objections
Government gets into trouble when it expects private enterprise to do anything other than what its DNA requires: to make as much money as it can.
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I completely agree with you and in fact, I have already cut up my credit cards 2 years ago. But the reason I am writing you is to inform you of something you may not be aware of. Credit cards, as all plastic cards, are made of polyvinyl chloride or PVC, a highly toxic plastic that is neither recyclable nor biodegradable. They usually end up in the landfills and stay there for eternity, polluting the environment and subsequently, our lives.
Your readers and clients may not be aware that instead of throwing the cut up credit cards in the trash, they can donate them to Earthworks, a company that recycles PVC and minimized its harmful impact on our planet http://www.earthworkssystem.com/index.html. I have written a blog on this issue which you can read here http://zoevblog.com/2009/09/16/wait-dont-cut-that-credit-card/.
So, people, don't just throw away those cut up credit cards but donate them to Earthworks so that dangerous PVC doesn't continue to pollute our planet.
With the increasing number of people who are defaulting, or about to default, on their credit card debt, I suspect the extent to which a credit card is "indispensible" for things that many people do like travel or stay in motels/hotels will significantly decrease. I also think obsessing about one's credit score is about as "done" as $500k 1 bedroom luxury townhomes. The times are changing for the downwardly mobile, which includes the majority of Americans right now.
"People tell me they are paying off their credit cards every month. I suspect they sincerely believe it. The hard data says otherwise." No one believes they're paying off their cards every month when they're not. They are lying to you, because their finances are none of your business.
It is absolute nonsense to advocate destroying credit cards. A person's credit rating often hinges significantly on how much debt (accepted or not) these companies are willing to extend. As someone who self-righteously refused credit cards for years, I know how many doors were closed to me because I didn't have established credit. Try to rent a car without a credit card. Try to get any kind of insurance without a credit rating. Buy an ticket on an airline, reserve a hotel room without a credit card. It cannot be done.
The problem is not the credit cards or the banks that offer them, and it never has been. The problem is the idiocy of people who believe they can somehow spend more than they make on a regular basis and it will all come out right in the end. Human greed is the problem, and no amount of plastic shredding is going to address that.
Nice idea but I don't see how ditching credit cards works in the real world.
How do you book airline flights or hotel rooms without a card? How do you travel abroad without one? Purchase items online? You must run through a lot of cash and change. (Banks track all financial transactions, including ATM use, not just credit card transactions, you know.) And stand in lines at gas stations. I didn't have cards in my early adulthood and it was a pain.
I am conservative and responsible in my financial life. I own my house outright and have no other debt. I use my two credit cards because they are convenient and because they aid my credit score, providing monthly evidence of my credit-worthinesss and spending patterns. They save trips to the ATM too. I have paid my balances in full every month with a one-month exception in the past 25 years. My cards work for me. I therefore am glad I have them.
It must be nice to be so perfect.............
It's not a matter of being perfect. It's about making difficult decisions, doing without, and only buying things you can afford.
I get a "kick" out of reading the credit card offers from the airlines and AMEX. Just spend $10,000 and we'll give you a free airplane ticket, except during holidays and other blackout dates. Um, guys, I can buy my own darn plane ticket for $59 and save the credit card debt.
That being said, I do have an AMEX (blue) card. The balance is paid off monthly (it's a backup card only). My primary credit card is through my own bank (TD Bank) and even though I carry a balance, the rates are competitive. Of course, my biggest debt is with my HELOC because I had to use it to pay off my other credit cards I've had and later closed. If the IRS ever takes away the mortgage interest deductible, we are ALL screwed!
HuffPost's Pick
This is valuable advice, Don, but there's more that must be done.
We all need to start plainly using "crime words" with regard to (especially) about twenty-one mega banks. What is securities fraud ... must be called that. Usury... must be called that. Swindling ... "say my name, say my name."
And bribery, yes. It's not a "campaign contribution," and passing out money is not "lobbying." Our Constitution lists that crime side-by-side with "treason" and I think there's an obvious reason for that.
I happen to think that consumer credit is a valuable thing when it permits greater liquidity and cash management ... but credit cards today (from the mega lenders) are a sucker's loan. Just a little bit of on-line searching will reveal that you can in fact buy a revolving line of credit at a much better rate from a smaller institution, although you will indeed have to "look them in the eye."
What is going on today, at a mega-bank level, is nothing more than fraud, swindling, and usury. Otherwise known as loan-sharking, paid-for by bribery. These are the crimes that you can literally read about in Mesopotamian clay tablets. It's high time that we expunge high crime from our great society.
Mr McNay, I get that you are speaking to the wider audience, but I just don't see the value proposition in cutting up my cards. I do track my spending, and I have rarely carried a balance. Interest and late fees over the past 15 years add up to about $100. I've gotten more than that in free airplane tickets by far. The main reason my wife and I like our cards is for expense tracking and convenience. Now, as another poster mentioned, my information is all over the place already, so that line of reasoning fails with me. What I'd rather see is someone advocating for good credit card businesses. Post the losers on-line, post the winners on-line, and urge people to pick the companies that don't jack up your rates overnight, etc. I think some regulation is needed to protect people from usury, but in general I want to reward the good guys, not throw the baby out with the bathwater.
Mike
Thanks for sharing the lessons that you learned through hard knocks. A Piece of the Action, the Joe Nocera book that I mention in the column, gives a history of credit cards and they didn't really come into full vogue until the late 1960's. I don't remember my parents having them and I did not get one until I was out of graduate school and in my first job.
Don
Don, I got rid of my credit cards in 1993. It was difficult paying off the balances; but I kept payment up. Then in 2001, I was fool enough to get a Capitol One Credit card promising zero interest. Then I was late on payment; and the next thing you know my debt exceeded my credit line...THEN they zapped me again with extra charges. It was actually health care costs that finally drove us into financial ruin; but Capitol One didn't help at all.
I carry no credit cards now. I also no longer get credit card offers. In fact, I get very little junk by snail mail. I don't even get very much junk with email!
My income is terrible. I don't have health insurance and am still in debt; but I am much happier without that kind of debt & the pressure credit card companies put on you. The debt itself continues; but I am working to eliminate it.
We did without credit cards until somewhere around the late 50's except for business people. I remember my Dad's first credit card as a then blue collar worker. His bank sent it; and he DID use it. He was one of those, though, who didn't use it as a loan so much as a way to keep track of things. To my knowledge he never paid the credit card company anything he didn't charge except when he was in the hospital, sick, after my mother died.
Eric,
I don't know what to do about the government invasion of every aspect of our privacy. I figure my not carrying a credit card is my small step of protest.
Keep on cutting up the credit cards and I will keep on calling you a patriot.
Don
HuffPost's Pick
I perceive a weakness in your tracking rationale. Your cell phone activity & locations are trackable. Your car is trackable. Your computer & its activity are trackable. So, too, is your computer printer paper. You are trackable in stores, & trackable in streets. Rather than hide from creditors you don't have, why not confront our government that approves, permits, & legislates legal economic enslavement? You'll also need to replace the national economic model of a consumer society, the current underpinning of our entire economic system. That said, this month I'm ordering closure of two credit cards, to the detriment of my own credit rating. Call me suicidal. Call me outlaw. Call me patriot.
Thanks for the article. I am one of the few people I know that does pay its credit card balance each month and yes, I have looked back over the past several years and can verify that. In theory, I love the idea of not having a credit card. But, my husband and I travel often and I don't know how I could book airline tickets, reserve hotel rooms and rent a car without a credit card. How do you manage those aspects of life in which a credit card is required?
Your question has come up several times and I need to write a follow up column about how I use debit cards that have a Visa feature. I've traveled all over the United States and Canada and an avid online shopper.
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