A week ago, I watched the documentary called, "Maxed out" and it was a real eye-opener as far as spending money and using credit cards are concern. It's not a surprise to me however that the average American household debt is $8,000. While some of the sources of debt comes from student loans, this can be understandable since a lot of us didn't have enough money while going to college. Whether you sent your kids to college or you supported your way to college, sometimes getting a financial aid (loan) is the way to go. In most cases however, there are also amounts of debt incurred that came from compulsive spending and the purchases that were beyond our necessary means. During the holiday seasons, a lot of us are obliged to go on a shopping spree to satisfy other people's needs instead of taking care of ourselves, financially. We use credit cards as if nothing else matters since its payment is waived for the future and it's the quickest way to acquire things or merchandise without having the cash at hand. Additionally, as a consequence of acquiring things quickly, a lot of us are willing to pay an extra 20% or whatever interest rate they have on the credit card or loan.
For simplicity's sake, if you're trying to purchase a HDTV for $1,000 dollars including taxes using a credit card that has a 20% interest rate, you're actually ending up paying an additional $200. Just because you wanted something so bad and financially out of reach, you'd rather pay $200 extra rather than saving up and paying something at $200 lower than it will cost you by using a credit card. Logically, it doesn't make sense but a lot of us feel pride that we "deserve" to have it and therefore, no monetary value can replace the reward that we deserve to pay ourselves. While I feel great rewarding myself a nice, top of the line television or this and that, I'd rather pay for it at a cost that's right without handing additional fees to the rich credit card companies. If rewarding the credit card companies is what you seek after, then they're rightfully happy with that.
I also have learned that using credit card instead of cash allows us to spend 8% more than our original spending allowance. This number goes hand and hand with compulsive spending and if you think about that figure for a second, that is huge. Spending money takes psychological consideration since purchasing items is limited by how much cash we have available on hand. If you have $100 in your checking account, do you think that you're capable of purchasing that $1,000 worth HDTV? I don't think so. Will you be able to peacefully sleep at night knowing that your next paycheck's income is already pre-determined to pay off a debt that was made a month or so ago? Living pay check to pay check seems to be a typical norm to a lot of people, and this can cause an emotional stress into one's life since worries are constantly there in front of us. Sooner or later, we find ourselves in a much, much deeper hole than before and before we know it, there's no way to catch up.
The lesson here is to better educate ourselves financially and understand the circumstances and consequences that comes with debt. While I find credit card useful in certain situations such as emergencies, I don't see any situation where credit cards should be used at all, period. Credit card companies' best interest is for us to make the minimum payments and that's how they make most of their money. Like everything in life, there is a give and take. Borrowing money is not free and there are consequences at stake when using credit cards or debts are incurred and usually at a price that none of us takes in consideration when committing. Purchasing items above our financial means does not make sense and if you really want to purchase something so bad, it should be using cash since who really wants to pay for something above the "premium" price? Before you make another purchase using a credit card, think twice before committing to it.
Live life to the fullest!
- Dennis