This Week’s Blogger: Scott D. Heins, CFP®, Chief Investment Officer
If you were fortunate enough to go to American Family Field on Monday for the Brewers’ home opening romp over the New York Mets, you likely witnessed some unacceptable behavior at some point during the game. I guess that is part of many people’s opening day traditions.
The good news is that the Brewers have significantly cracked down on one specific form of unacceptable behavior. In fact, there are only three locations in all of American Family Field where you are permitted to . . . use cash to purchase food from a concession stand.
In the unfortunate event that you planned ahead and stocked up on cash for your game purchases, there are cash-to-card kiosks that will convert that useless cash into a pre-paid card that is accepted throughout the ballpark. I know I am dating myself, but I remember a time when people used ATM cards to obtain cash.
Using cards instead of cash does have its advantages, but there are also a few cautions for our increasingly plastic world.
The greatest temptation with plastic is the reason retailers encourage its use. Americans are subpar when it comes to their delayed gratification skills, and using credit cards allows them to buy things they cannot really afford today and convert the pain of paying for that stuff into an affordable minimum monthly payment. For many, the short-term joy of the purchase fades long before the long-term financial impairment of carrying a credit card balance begins.
If you don’t have the cash in the bank to pay off the credit card every month, then you truly cannot afford it.
The significant financial impairment of credit card debt is caused by one of the most powerful forces on earth – compounding. When investing over long periods of time, compounding is your best friend. It enhances your account value by growing your investment growth over and over again.
Compounding is your worst enemy when it is actively working against you. The average credit card interest rate right now is around 24%. Making the minimum monthly payment maximizes credit card issuer profits by minimizing any principal reduction. The longer a victim is in debt the better from their perspective.
It is amazing to me how many Americans shrug off losing 24% per year to credit card interest as the cost of living, but panic when long-term investments temporarily decline by 24%. There is no hope of ever recovering the 24% generously donated to the credit card companies.
Be wary of the add-on. Twice over the last few weeks I have encountered businesses that add a 3% service fee to all credit card purchases. If you are using a credit card to accumulate miles or cash back, this new add-on more than wipes out all of those extra benefits. Using a debit card or (gasp) paying with cash or (rolling eyes) writing a check is likely a better option when you encounter businesses engaging in the credit card add-on movement.
Finally, be sure you know who is who on your credit card accounts. Many couples assume they have a joint credit card account because each of them have a credit card. In many cases, one of the spouses is simply an authorized user instead of a joint owner.
We have had several surviving spouses whose credit card accounts were abruptly cancelled once the credit card issuer discovered their spouse had passed away. They received no notice of cancellation. The credit card simply stopped working one day at checkout.
If you prefer not to have a joint credit card, consider having one credit card in each spouse’s name to build and maintain a personal credit record.
Managing credit cards responsibly boils down to a few simple rules:
- Only buy it if you have the cash in the bank to pay for it
- Never ever pay a nickel of interest to credit card companies
- Avoid the add-ons
- Know whose name is on the account
Quote of the week:
Dave Ramsey: “Some people are just stuck in their ways and have been brainwashed into believing that credit cards and debt are an unavoidable part of life.”