Are Credit Cards Your Financial Potato Chips?
I suppose most of us have a food vice; that one treat we fall for consistently, even when we know we shouldn’t. Sure, we’ll be good for a while….but eventually we’ll return to our true love (even if it’s bad for us!).
For me, it’s potato chips. Yes, I know all the problems with chips – high in sodium, raises your cholesterol, no nutritional value, high in calories. But set a giant bag in front of me and I’ll climb in and eat my way out.
Then, like a chip hangover, I’ll regret it, especially when I have to pay the price as I’m sweating on the elliptical or out for a torturous run. I’ll promise myself that next time it’ll be different, but who am I kidding? The siren call of the chips will soon return and I’ll be slouched in chair covered in chip dust.
In my financial coaching practice I often work with people who seem to have this same sort of relationship with credit cards. They know they shouldn’t use them as they have been – and they have the unpaid balances to prove it. Yet they return to their vice time and time again, even when it’s to their detriment.
To be clear, I view credit cards as a financial tool. As the Bible says, it’s the love of money that is the root of all kinds of evil, not the money itself. Focusing on our love of money means it’s about our internal attitude, not the object (money). Like money, credit cards are neither “good” nor “bad” themselves, but they are potentially either of these depending on your attitude and use of them.
Some financial advisers, Dave Ramsey most famously, discourage credit card use in all situations. I would agree that many shouldn’t use credit cards, not because they are inherently bad, but because – for them – the credit card is like a financial potato chip.
Personal finance is much more “personal” than it is “finance” and no one should feel ashamed of past poor credit card use. We’ve all made mistakes in our past (not just financially) and hopefully we can learn from them. If you’ve made the decision to stay away from credit cards because of past misuse, you should be congratulated for showing maturity, not condemned for prior mismanagement.
If you’ve had a poor history in the past but are still using credit cards with the wrong motives, you may want to consider taking a step back from them. They may be your financial potato chip!
How can you know if you have a problem with credit card use? Here are a few warning signs:
You pay interest, even a penny.
If you’re truly using credit cards for their convenience, you should never pay interest – not even a penny. Credit cards must offer a grace period of at least 21 days. With on-line options for paying your balance, there is no excuse for exceeding this period and incurring an interest charge.
You use credit cards to bridge gaps in your budget.
Often credit cards are looked at as a tool to fill in a spending gap. Perhaps you’re a little short this month, so you just put your groceries for the last week of the month on the credit card with the idea that you’ll figure out how to pay it next month. This is a sign of a problem in the budgeting process and a sure warning sign of financial problems ahead.
You move your balance from one low rate card to another – with no decrease in the balance over time.
I have no objections to my coaching clients moving a credit card balance to a zero- or low-interest promotional credit card. They may need to do it several times as they are paying the balance down. The problems arise when the balances are moved from one promotional card to another (and then to another) but the balance is not coming down. You’re simply delaying the day of reckoning and not making any real progress reducing your debt.
Justifying a transaction based on the reward points/miles/cash back.
I confess – I love rewards from credit cards. It’s like found money (or points or miles). However, if you find you’re justifying a purchase based on the reward, you’re misusing the card. Overspending to get a reward is a losing game. If your credit score is strong enough for you to qualify for a great reward card, enjoy the perk, but don’t let it drive your purchases.
Recognizing who we are – our strengths and our weaknesses – is vitally important in all areas of our lives, including our financial lives. There is no shame in deciding to forgo credit card use if doing so would damage you or your family. In fact, you should feel proud facing up to the issue and making a stand. If you need some coaching help to assist you in bringing it under control, feel free to contact me.
Tame the vices in your financial life by acknowledging their existence, deciding to avoid them, and seeking out alternatives. Now if I could just do that for potato chips….
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.
If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.