The Credit Card Lie

Lie:  Credit cards are a good financial tool and they will help you to build prosperity.

Truth:  In the end, credit cards only make the banks rich, and they make you poor.

The credit card epidemic probably started in the 1980’s and it is has run so rampant that dogs and dead people receive credit card applications every day.  Over 4 billion credit cards were issued last year according to Nellie Mae fiinancial services.  The problem is that millions of those credit card recipients cannot afford to be using them — including college undergraduates and recent college graduates.  Here are some alarming statistics taken from a 2002 statistical pool.

  • Undergraduate students carry an average of three credit cards each and have an average credit card debt of $2,327 in 2002—a 15 percent decrease from the 2000 average! (Nellie Mae,2002)
  • The average college freshman has 2.5 credit cards; by graduation they have almost tripled the number of cards they hold. (Nellie Mae ,2002)
  • Graduating students have an average of $20,402 in combined education loan and credit card balances. (Nellie Mae, 2002)
  • Graduate students have an average credit card debt of $4,776 and hold an average of four cards each. (Nellie Mae,,2000)
  • Twenty-eight percent of students with a credit card roll over debt each month. (Nellie Mae, 2000)
  • University administrators state that they lose more students to credit card debt, than to academic failure. (Utah Mentor, 2003; The Voice Digital News, 2003)

The biggest lie about credit cards is that they will help you with your financial future.  It is true that if you use them “correctly”, they can boost your FICO score and give you some airline miles that you will probably never use.  However, so few people ever pay off their balances each month, or else the average american family and single college student would not carry a 3,000 – 5,000 balance each month.  Also, I am not as concerned about the numbers aspect of credit cards like astronomical interest rates and ridiculous hidden fees.  I am more concerned with the behavior that it teaches young people.  The “I can have this now and pay for it later” mentality is a dangerous mentality to have.  You will find yourself becoming a slave to money and a slave to the lender.  You will go through your entire life always paying payments on cars, credit cards, and property.  The money will come in, and it will go right back out.  That’s a horrible feeling if you have ever felt like your paycheck was in your account and out of your account faster than you could count the money.

In my personal experiences, I screwed up with money at a young age.  By the time that I was 20 years old, I had amassed $15,000 in credit card and student loan debt.  I am not saying that every college student is like me, but the average college graduate leaves with two D’s: a degree and debt (20,000 of it on average).  I am now married and still trying to dig my way out of the debt hole that I accumulated in college.  If you are still convinced that I am an idiot and that everyone in the world thinks credit cards are a “good thing”, then go interview a self-made millionaire or read “The Millionaire Next Door” by Thomas Stanley.  I can assure you that very few of them will ever say that they became wealthy by leveraging debt or using credit cards.  They became wealthy by paying cash for things and saving more money than they spent. 

  • Flexo

    Once one can manage their finances expertly and no longer in debt, no-fee, cash-back credit cards can be used as a useful tool… if:

    1. You are careful not to spend more just because it’s plastic and cash
    2. You pay your balance off in full, on time, every month

    It take a lot of discipline, so the idea isn’t for everyone, but if you’re not leveraging debt and instead using credit responsibly as a planning mechanism (and have enough cash to back yourself up if you get yourself stuck), credit cards aren’t so evil.

    BTW – I just discovered your site… looks great! Can’t wait to read more!

  • Flexo

    (… pastic and *not* cash …)