Romans 13:8, Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.
Benjamin Franklin said, Rather go to bed without dinner than to rise in debt. And that’s why I want to continue to talk about today is that of debt.
So previously we talked about how the debt has transferred wealth. We talked last week about the credit score, the credit score, and how it’s a, you know, a fool’s game to play.
And today I want to talk about reasons why I have not used a credit card since 2007, August of 2007 specifically and that’s almost been 17 years. So, for those of you who have watched the backstory, you kind of understand what happened to us essentially in late 2007, Eric and I hit a financial wall.
It was a very, very tough time in our lives and our careers and our marriage. We were separated, you know, not necessarily from a divorce perspective, but from a geographical perspective. I was in Virginia working up there. Erica was down in Florida. We had two households who were kind of supporting.
It was just bad. I mean, we were all struggling because of money. We had a debt-to-income ratio of about 60 percent give or take. We were drowning in debt. We had way too much debt, and the sad part is we were still borrowing, right? Cause I didn’t know what to do to be honest with you. And so fast forward a little bit beyond there and starting by the end of the year around August is when I first heard of Dave Ramsey, and I went on my quest to learn about money and stuff like that.
And by the end of the year, we were working our way out of debt and Mrs. Beautiful, and I had essentially cut off all credit cards use. And what we learned after listing all our debts, so I, I did this spreadsheet and Eric has mentioned it before on one of our shows. Basically, I listed all our debts and all our payments, and I was like, hey, we’re already paying these.
If we didn’t pay these debts out, how much would we have to invest? You can go back two weeks ago, two weeks ago and watch that show on that topic. And there’s a sheet on there where you can download your debts and list them all out and see what it’s costing you as well. But I wrote that on and what I realized is the things that are costing us the most in terms of interest were those with the credit cards, right?
No doubt. And so, one of the first things we did was we closed all our accounts to future charges. Or at least I thought I did. I’ll be honest with you. I’m pretty sure I did but more to come on that. But essentially, we closed them to future charges. The ones we could, we could cut up and get rid of them.
And by God’s grace, almost 17 years later, we have not used a credit card. I want to give you essentially nine different reasons as to why. About things that I learned about credit cards, you know, and kind of in the order. That I learned them over time. So, the first thing you want to know about credit cards is that credit and really debt in general is a very big business.
I remember reading in 2008, I don’t know if it was the third quarter of the fourth quarter that Kohl’s the department store Kohl’s, they sell like clothing and home appliances and stuff like that. Home homewares they made more money that quarter. There, their CEO highlighted this on a, on their annual or quarterly report, as well as that their investor share that they made more money from their credit department than they did on merchandise.
Meaning that they sold more on credit cards, and they made more off-credit card interests and late fees and penalties and stuff like that than they did selling merchandise. I was reminded of, of this fact by a recent Wall Street Journal article that talked about how the Consumer Protection Bureau is proposing some rules to limit the late fees and penalties and stuff, you know, down from like 41 down to 8 or capping at 8 or something like that.
And of course, all the credit card companies and retailers are, are, you know, having a fit about, but it said, it said this in that article, I said, quote credit income accounts for 49 and 44 percent of Macy’s and Nordstrom’s operating incomes in 22, almost half of their income of Macy’s and Nordstrom’s came from credit.
At Kohl’s. Still, this is what kind of remind me of it. The Coles credit income far exceeding an operating income implying that the retailer had would have lost money if it had not been for its credit card business. is so dependent upon credit, the credit department of its, of its brand, not the merchandise, but the credit.
It would have had a loss. It didn’t have it. Right? These companies are putting up about 40 percent debts, right? So, debt is a big business. So, you think you walk into the store, and you just think you’re getting a deal, and they want to offer you 10 percent or get something back. Well, you don’t realize is that’s an investment for them.
They’ll easily pay you 10 percent because they’re hoping you, you know, don’t pay it off on time. You can pay it, pay those penalties and interest. So again, because debt’s a big business and that is why you can finance everything now from, you know, airlines to tires, to stuff on Amazon. I think I went to just a banks one time and they had like four payments for a shirt or something.
It was like ridiculous, right? And the reason why is because debt is a big business, right? Reason number one, reason number two, one of the things I learned, this 2009 or so. I was working with this guy who’s really into investing and always into stocks and stuff. And one day I got curious cause you know, I was on this very anti debt kickback them still am, I haven’t really changed in 17 years or so.
But you know, we were talking about MasterCard and Visa and MasterCard at the time was trading publicly. And I went to look at his stock and I’ll tell you this, I don’t invest in single stocks, but if I did, if there was one stock that I would own, it would probably be MasterCard, or the second one would be Visa.
MasterCard, since its IPO in 2006 is up 9, 857 percent as of a couple of weeks ago. That means it’s doubled and doubled and like a gazillion times, right? And, and, and same thing, and this, this kind of came up for a discussion around that time because Visa was coming out in an IPOing which is their initial public offering when the stock basically comes public.
It was a private company before that comes public. It’s up all only 1600 percent since then. But here’s the thing you must realize. How does Visa and MasterCard make all their money? Well, when you when you get a credit card, it’s from a bank, right? Navy federal bank of America, Wells Fargo, whatever it is.
It’s the bank, the one who’s lending you the money, not MasterCard or Visa, MasterCard and Visa are just the processing system that you run through. Same thing. If you use your debit card and you swipe it right, you had a little Visa or MasterCard logo on there. All they are a. Money processing system that basically takes money from your account, whether it’s your checking account on the debit side or the credit card account on the credit card side and moves that over to pay the retailer, the vendor, the person who made the transaction.
That’s all they do is move money around. And so, they don’t really, they’re not the ones who loan you the money. They don’t really sell the product. They’re just in between the transaction and they take a little bit of cut all along the way. And it’s a big business now, it’s not so much a big business now, but I remember years ago for one point, my dad tried to open a card and sports mobility store.
And this was a time when credit cards are starting to come out and he would charge more for credit. If you pay cash, it’d be a discount. If you pay credit, be more. Sometimes you see that gas stations too. The reason why is because the retailer must pay a servicing fee to Massacre and Visa, so they don’t get all the money.
Right. So, the reason number two of reason why I’m against credit cards, I don’t use them essentially is I realized how much money is being paid to MasterCard and Visa by the transaction. So, my thought is, you know, while it’s a smaller deal, if I pay cash there more often or use a debit card then maybe.
You know, the vendors won’t charge as much money. Maybe, maybe not. But what I did realize is that MasterCard and Visa are big companies making a lot of money and not really selling anything except for, you know, the, the processing system in between. Number three reason why I haven’t had a Craig Carson’s 2007 is I realized that.
When you pay with plastic, you pay more, right? When you pay with plastic, you pay more. And the reason why it’s simple, right? So if you take, you know, a credit card, this is debit card, not a credit card, by the way, if you take a, a, a card into there and you basically swipe it, if I buy something, let’s say I’m buying this, this pen, if I go to buy this pen, the, the merchant gives me the pen and I swipe and I put the money I just swipe and I put the card back in my hand.
I didn’t, lose anything, I just gained something, right? It’s very psychological. Whereas when I pay with a dollar, I gained the pen, but I must give up the dollar. It goes away, right? So, I feel the loss. Carnegie Mellon did a study on this in the brain. The, the fear, the pain sensors study fire more when you pay with cash, when you do with playing card.
Study after study after study. McDonald’s, when they first started testing this, found out their average order went up like 47%. If you just Google pay more with cash plastic over cash. You will find study after study, after study, after study, after study of people pay more. You are more reckless with your spending when you use plastic than when you use pay cash.
It’s just the truth. And there’s lots of studies that show comparing the, you know debit cards with the credit cards, right? Credit goes up more. My guess is, I don’t really know. I should look for size. My guess is if you tap the, you spend more as well. And then if you pay for with your phone, right, your phone and all the tap stuff, Apple pay and all that, why did the Apple get into that?
Let me think about it. If there’s no money being made in the money business, which there is, there’s a ton of, why would Apple get into Apple pay and Google get into Google pay if they’re, you know, Manufacturers of hardware and software. Why would they get into that business? Cause there’s a lot of money to be made.
That’s why. And so, there’s let the, the rule in marketing and sales is the less friction there is, the higher the sales will go up. Right? So, when you have cash, you must have the cash. When you have a debit card, you must have the money in your account. When you have a credit card, you must not really do anything.
Just don’t be an overdraft. Right? So that there’s less friction involved in it. So, you pay more when you use plastic over you do when you pay with cash or with debit card.
Number four has to do with the terms and conditions. I don’t know if you’ve ever taken the time to read.
The terms and conditions associated with a credit card offer now, but I have done this many times. I used to do this at gas stations. I’d be pumping gas and I’d just put on one of those things at the gas station. The airlines, I did it with like Delta when I was flying through Atlanta one time, picked up a brochure.
And if you read those terms and conditions, it basically says we can change anything at any time for any reason and screw you every which way we possibly can if we want to. I’ll just summarize. There’s page to page. That’s what it comes down to, right? I mean, it was just crazy and I learned this the hard way to be honest with you This is how I learned it when I was hitting the wall and our credit score was plummeting and our debt was sky high And I was kind of stuff, you know I don’t know if they I don’t know if they got in a secret council or whatever and started talking or whatever But all my credit cards decide I got these notice in the mail It says, you know based upon your credit and all this kind of history and duh.
We’re raising your rates I mean I’m like, wait a minute, how did, how can they do this? And then you read, well, according to terms and conditions, we can raise the rates for, you know, any, basically any reason they can apply it. If you dig into it, they can apply the highest interest, you know, last and the lowest interest first, if they want, right.
They can do all these things. And when I went to Ramsey coaching council, I remember this guy coach Russ. He’s probably passed away by this point. I retired from there. He was Dave Ramsey’s number, essentially number employee. Number one, he’s the second coach and he’s still there for a long time.
When I went there in 2010, he basically said this, he said, what the big print giveth, the little print taketh away, what the big print giveth, the little print anyway, so you see free nights and resorts and free flights and all that kind of stuff. And then you unpack it. You know, the details of it, it’s just mind boggling.
It’s just absolutely staggering of, of how things can change. And so, you know, they changed the rules of the game mid game to benefit them. No, thank you. I’m out. Right. Now, as I started, you know, kind of getting into coaching and, and, and proselytizing some of this information, if you will you know, start getting some pushback on it.
And so, one of the things that that’s kind of the rest of the list here, essentially number five, number five is that a fraud protection. So, a lot of people say, well, what about fraud protection? Aren’t you worried about your credit card? You know, your debit card getting stolen. At least they don’t get the money and so on and so forth.
But the truth of the matter is that MasterCard and Visa have 100 percent liability protection on both their credit and debit cards. Same policy, same statement. And you can read it. If you go onto their website, you can read it on there. Now I’ve had fraudulent charges, Mrs. Beautiful, and I probably on our debit cards.
Probably somewhere between three to five times or so. I know one of our daughters did as well. Her purse got stolen one time and they charged something. And so basically all you must do is for us, we just call our bank, let them know, hey, contest these charges. They’re fraudulent charges, fill out a form.
And with Navy federal, they put the money basically back in our account within 24 hours or so. And you say, well, you don’t have the money, you know, for those 24 hours. Well, Again, that’s why you have an emergency fund. That’s why you have at least 1, 000 in savings. And if you don’t have any money, probably shouldn’t have a credit card anyway, right?
Maybe there’s a correlation between those two things. Maybe, I don’t know. So again, you know, the same fraud protection occurs and yes, you are out the money for a period of 24, maybe 48 hours, maybe 72 if it happens over a weekend. But ideally, this is why, if you go back to the savings of where to have your emergency fund, I talk about having it in two different banks, if you go back and watch that show of where’s the best place to have your emergency fund, I talk about that, and that’s the reason why in case, basically that card account gets shut down and the money’s gone for a little while.
It’s gone. And or, you know, because when you put a fraudulent charge, they’re going to close that account, send you a new card, or you must go to the branch and get a new card. You have this other account to use for a period. And the same thing would happen on your credit card. It would get closed.
They’d send you knew cards, right? So, there’s no advantages of having a, a credit card. What I learned is the only thing, the only difference between the debit card and credit card is I can do the exact same things with the debit card, except go into debt. That’s the only thing you can do with a credit card that you can’t do with a debit card is go into debt.
Everything else is basically the same. So, speaking of that the next pushback, one of the other pushbacks I heard says, well this, this is, this is kind of where I said I had a credit card past 2007. So slight confession, I thought I closed all my cards as I paid them out for it.
So, I closed them. I thought, I thought in 2007 I thought I closed them all to future charges and as we would pay them off in our debt snowball, which we’ll talk about next week I would call them up and cancel them. And years later, so we got out of debt 2010, 2013 I was working at. The CIA is a financial counselor there and I was doing a presentation on how to check your credit and I went to check mine to get the step-by-step instructions and I was unpacking one and I found a Bank of America card that was still open.
You know, five years later, essentially from when I thought I closed it because it was one of our smaller ones. So, it was when we first paid off and I saw on our credit report, which is why it’s important to check your credit report. You can check that episode out a couple of episodes ago as well. Last week I thought about checking your credit report once a year or so.
And, and this is why I came upon it because I realized I had a credit card account still open, and I didn’t realize it. So, I caught a bank of America and I talking to the lady, you know, and so, you know, I, and anytime you just try to close a credit card, they’re going to do whatever they can. They’ll try to sell your, you know, sell you their kid or whatever to, to pull it back to keep you from closing it.
And you just must get almost just very rude with them to just authoritative, you know, to get them to close it. And she’s like, what are you going to do if you have an emergency? Yeah. I said, what do you mean? She goes, well, you’re closing this credit card. What are you going to do if you have an emergency, emergency?
I said, I’m going to use my emergency fund. Oh, you have a merchant fund. Yeah. It’s different account with 20, 000. And I’ll just use that. I don’t need your little 2, 000 credit card. That’s what it was at the time. It was one of the little ones. And she’s like, Oh, okay. And then she closed it. And so, you know, one of the things, what are you going to do if you have an emergency, and you need a line of credit?
Well, you just have cash, have money. Again. If you don’t have any money, maybe you shouldn’t really have these credit cards. Maybe there’s a correlation why you don’t have any money because you have all these credit cards. You know, so something to consider there. So, the nice thing about not having a credit card is you have your own, you are your own bank, right?
We have our own emergency fund that is our own bank. If we have an emergency, we just use the money. That’s in the emergency fund. Reason number seven another kind of thing people push back. What about renting cars and what about renting hotels?
And I can tell you that I have rented cars across the United States, everywhere from the East coast to the West coast to Hawaii Europe. All, all over the place. So, we have rented cars, no problem. Same thing in hotels, no problem. Never had a problem with it. I remember one time I had this client they’re doing awesome there.
I think they’re going to Iceland or something like that on a, I don’t know if it was a honeymoon or just a Vacation or what it was and they were really concerned about, you know, the credit cards. They want to get a credit card and all that kind of stuff. And, and they weren’t sure how to get a car there because they need a car for a couple of days and they went to the enterprise and the enterprise said, oh, we don’t rent cars unless you have a credit card that which isn’t true.
And so eventually. it’s called Dave and Nicole. So, Dave and Nicole I, I talked to him off the ledge, you know, I said, you can get one if you want, you know, it’s your, your life. You can get one if you want. I wouldn’t recommend it. I’m pretty sure you’re going to be fine. And you know, so they came back, they had their trip.
And then like two or three months later, I was wondering if I was going to call whether they’re there, but two or three weeks, two or three months later, we had our quarterly meeting. And I said, oh how did it work out? You know, with the credit card and a car rental thing? Oh yeah, we were fine.
Yeah, no problem. They took her debit card. Didn’t even ask. Wasn’t a big deal. Like, yeah, it’s just not that big of a difference. Now I will tell you this, right? It is best to call ahead. You know, enterprise local enterprises will certainly run a card. A dollar takes debit cards. A lot of places will take car rentals at the.
Airports, but one thing I did learn the hard way, it had me walking. I had to walk about a mile to meet one of my daughters and my son came to rescue me. He saw me walking. Funny story there. But what, what you do have to line up, if you’re renting a car, you must rent it for the entire time of your flight.
So, you must show them that flight back out. And so. You must have those dates match up. I did learn that the hard way. So that’s one thing. And I would say, just call ahead to make sure that the company you’re using takes debit card and that specific branch is in Atlanta one time and it’s getting a car.
I had debit card credit card and the, the young lady in front of me, she was probably in there may be late teens, early twenties or so. She’s going to use a debit card too. We had to fill out some questionnaires or whatever. For some reason, she couldn’t rent a car. I don’t know if she had bad credit. Or didn’t have the deposit or I don’t know the details of it or whatever, but I know for her, she had problems with using her debit card there and was on the phone with, with somebody trying to help her out.
So general rule, what I do is I always kind of, you know, I use basically dollar and enterprise because I know those, those who take it. But again, still call ahead just to make sure that they do. And if they don’t, then they don’t get your business. That’s the way I do it. Right. So, if it’s Hertz or thrifty or whoever, whatever the other ones are if they don’t take debit cards, then they don’t get my business and I go somewhere else.
Pretty simple. Number eight. Right. And this is a big one. This is a big one here, right? Kind of, again, things that I, where I’ve learned them, and they’ll say, But Mike, what about the points? What about the points? You’re missing all the points. You’re getting cash back, free points. And every time they say, you know, but I’m missing on the points.
I ask him one thing. I say, can I go into Walmart with those points or Chick fil A and buy something? Cause they’re complaining. They’re comparing like the points to money because I can take this dollar bill and I can go into Walmart. Maybe, I don’t know if I can buy anything with inflation, but you know, I can buy something, probably can’t get anything to Chick fil A for a dollar anymore.
But with cash I can go in and buy something and walk out the store with it. If I have points, say I got, I got points on my phone for this credit card. Can I buy something at Walmart? No, Walmart doesn’t take points, but they take cash, right? So that really doesn’t matter. Cash back. Well, that’s just, that’s just paying less.
That does. That’s not, you don’t get the cash back. The cash goes into the account. It’s not like you get the actual cash. It’s just marketing. They’re just, you’re just paying less for it. So that’s not cash back, but it sounds better when they say cash back. What marketers have done and what a lot of people have done is they have gamified debt essentially.
Timeshares did this a long time ago. They have gamified it to the point where they lure you in with this kind of stuff. Right. And they make it a game. Like, look how many points I got. Look how many points I got. And all kinds, you see all kinds of things doing this and it’s like it becomes a game and you detach from the reality, right?
It’s like a video game that you’re playing and there’s a point. Well, when you turn off the video game, the points go away. Maybe they get saved. I don’t know. I’m not a big gamer. Right. But the idea is that they kind of gamified all this stuff to make it seem to disconnect from reality. But here’s the thing.
You got to realize that these companies, banks, and credit card companies, they are trillion-dollar companies. They know what they’re doing. They lure you in with free points, free flights, free miles, free, whatever. And the reality is that. They know that statistically a percentage of those people are going to end up deep in debt and the people end up in debt paying Interest are going to outweigh what you’re making in terms of points, right?
No one ever says I’m going to go get this credit card to go deep into debt and pay a ton of interest. No, I’m surely, no one has ever said that. They get lured in with this free whatever, and then they end up in credit card debt, right? And so, it’s a game to lure you in. It’s, it’s like a shiny lure in, in the lake, right?
You got to be smarter than a bass, right? A bass will just chomp on everything that sees shiny. You got to be smarter than that. They know what they’re doing here. And then the sad part of this, and this is really, you know, the reality of that. Have you ever thought about who pays for all those benefits, those trips, those free nights, those free miles that cash back the points?
Somebody’s paying for that because the companies aren’t running a charity or nonprofit. And it’s the people who are really struggling, really the ones deep in debt who are paying tons and tons of fees and tons of tons of interest. They’re the ones who are subsidizing and paying for your free stuff.
And that’s kind of sad. It’s kind of sad to think that you’re getting cash back and free points on the back of some single mom who’s working two jobs and struggling to get out of debt to have a future for her and her kids. She’s paying all this interest. Everything’s working against her and you’re reaping the benefits of her hard labor.
Don’t that just make you kind of sound sick? It’s kind of like sorting, sort of oppressing the poor and Proverbs 14 31 says he that oppresses the poor reproaches his master. That’s not the category I want to be in. So yeah, you might be getting the free points, but have you thought about who’s paying for all that stuff?
And if you’ve seen some of the people on South, some people that I’ve sat with, or been where I’ve been with, it’s kind of sickening to be taken advantage of, of that. And you can say, yeah, it’s capitalism and that’s how it works. And you got to make better decisions and that’s all true. And everybody has a right to do what they want to do.
But me personally this stuff is kind of ethical and moral for me. And so, I just said, you know, I’m out. I’m not going to do it. So, there you go. Nine reasons, nine reasons why and two since 2007 I’ve not used a credit card. Now, again, I had one since 2013 I didn’t realize it, but I did your micro action for the week.
Cancel your credit cards, close them to future accounts, cut them up, close the accounts if you have zero balance. And if you’re not willing to do that, I challenge you to list nine reasons why you should use If you’re not wanting to get rid of them, can you come up with nine valid reasons why you should have and use a credit card?
Today we talked about the credit cards and why nine different reasons why I have not had one or used one. I’ve not used one since 2007, had one since 2013. Hope this helps you and informs you on your financial journey. If you have any questions or comments, you can leave them below or send an email to Mike@TrueWealth.show.
And until next time, hope you have a great day.
