Playing The Credit ‘Card’

Jan 14, 2013 by

CreditCardTrapCredit cards are the devil.

If you’ve been paying attention to our recent posts in the category of finances, that might be what you think we think about those little pieces of plastic that can sometimes choke the very life out of your life.

You might be surprised to learn that nothing could be farther from the truth. In fact, a savvy consumer can certainly use credit cards to their great advantage, so long as they understand how the game is played and can be disciplined in their actions.

Of course, that’s just the thing – too many of us neither understand how the credit card game is played nor have the ability to exercise discipline in our use of those little plastic sirens. When either or both of those conditions apply to you, its probably in your best interest to stay far away from the evil vortex that is also known as credit card debt.

In discussions with friends and family in recent years, I’ve come to realize the same thing that the banks must have realized many years ago, most people just aren’t terribly sophisticated or disciplined when it comes to managing their finances, let alone understanding the basics of typical credit card offers and how to use them to their advantage.

There’s probably not much that I can write in this space which will somehow turn anyone overnight from being a lavish, wanton spendthrift to a responsible and disciplined financial guru, but what I can do is talk a bit about the basics of credit cards and how they can actually be a benefit rather than a detriment to your life.

You may notice that I call credit cards a ‘game’ and in my mind they are exactly that. It’s very reminiscent of what goes on in a casino, where many people come in and become seduced by all the flashing lights and implied promise of big winnings; they enjoy playing the game, but afterwards the majority find out that the house is walking off with their money while only a few have managed to stick to their game plan of only gambling a certain amount of money and then quitting while they are ahead.

The reason casinos and banks make the big money is because they successfully play on certain inherent human tendencies and frailties.

I think most of us are familiar with the basics of the game played by the casinos (though believe me, the science and psychology involved goes quite deep, just as it does with the game of revolving credit), they exploit the various levels of gambling addiction which is a powerful human trait. It seems that maybe fewer of us realize the similarities to the game of credit, which exploits our shopping addiction, also a common human trait.

The ‘buy now, pay later’ promise of credit cards and the use of a small piece of plastic is very much akin to the reason that the casinos don’t allow you to use real cash but instead give you colorful plastic chips: to help you disassociate your fun filled actions from feeling as if you’re spending actual money.

Therefore, philosophically speaking, its a good idea to train yourself to never lose sight of the fact that each charge you make is cash money leaving your pocket. 

each charge you make is cash money leaving your pocket. 

each charge you make is cash money leaving your pocket. 

each charge you make is cash money leaving your pocket. 

Now that we’ve gotten that fundamental understanding burned into your brain, lets talk at a high level about how credit cards work and what can be done to make them work for you.

Credit cards offer what amounts to a short-term loan, payable within usually 25 days or so. Banks are saying ‘hey, we will give you free money and as long as you give it all back within about a month, that’s the end of that.’

It sounds like a great deal, and actually it IS a great deal!

Unless…you don’t pay it all back after the month comes and goes. Then that friendly, smiling banker turns into a sleazy, grimy, hand wringing, evil grinning loan shark.

Everything changes when you don’t pay your balance in full – what was initially a very straight-forward and advantageous arrangement for the borrower: free money to spend however you please for one month, turns complicated.

If you don’t pay at the end of the month, now they are going to want their money back, plus extra loot in the form of interest.

So winning at the game of credit cards sounds pretty simple, right? Of course it does. Pay it all off every month, then you can enjoy free money from the bank and avoid forever the burden of crushing debt and high interest rates. While its definitely simple, for many of us it is not easy.

If everyone did this then before long there would be no more credit cards or the banks would go broke, so what does that tell you? Here’s a hint:

That isnt what everyone is doing.

The banks expect that the vast majority of us will not only not pay the balance off at the end of the month, but also wind up charging more to the card in subsequent months before paying the earlier balances off, putting us eventually in a situation where we are paying the bank interest in perpetuity on a loan balance which grows far beyond our ability to pay in any kind of short term.

Time after time we prove the banks right, which is why those greedy, evil grinning bankers are laughing all the way to the…er…bank.

Moral to the story and simple credit card rule #1: Thou shalt pay your balance in full each month.

Moral to the story and simple credit card rule #2: Thou shalt not charge anything on a card that has an outstanding balance from the previous month (assuming you’re reading this at a time when its too late to start with rule #1).

When you think of your credit cards as cash money as recommended above, these rules are much easier to follow – it almost makes you use it more like a debit card as opposed to thinking of your credit card as something which is available to you in addition to your salary.

Don’t be greedy. Don’t be impatient. If you want something, save up for it before you buy it. If you need it before you have all the cash, only buy it on the card if you fully and realistically expect to have the rest of the money available before the card cycles and the next bill comes due.

The benefits of disciplined credit card use are many, such as:

  • When used correctly, credit cards provide an interest free short term loan for your purchases
  • Responsible credit card use helps build your credit score over time
  • Use 0% introductory rates for larger purchases and still pay them back over multiple months without paying any interest.
  • Insurance for purchases and many other perks
  • Rewards such as points or cash back from certain cards

That last bullet point is something to be seriously considered, because it can transform you from being a person who simply masters the art of not being screwed by those malefic, evil grinning bankers into someone who can actually win at the credit card game.

Much like the difference between the casino patron who basically breaks even with just enough extra at the end of the night to pay for their parking and buy a Big Mac on the way home and the guy who has to call his accountant as he’s cashing out his chips to figure out what to do with all the money he’s won, credit card rewards programs can make a world of difference to the savvy consumer.

I’m completely debtless, yet I currently have no fewer than EIGHTEEN credit cards.

Using my cards wisely, I’ve been able to travel the world for free or nearly free!

I recently decided to share my Travel Ninja secrets with any interested ThriveQuesters who also enjoy traveling, whether domestically or internationally, and would like to do so for literally next to nothing.

If that sounds like you, you just may be interested in my soon to be released eBook, tentatively titled Secrets of a Travel Ninja: Learn To Travel And Live The Good Life Practically For Free!’ wherein you’ll learn how to take your responsible credit card usage to the next level and live a bit of the good life in the process.

The book should be available for download via Amazon within the next two to three weeks, sign up below if you’d like to receive a FREE copy during a special ThriveQuest promotional release period.

Edit: About a month after the initial publication of this article, the book was released and has received excellent reviews. The Amazon #1 Best Selling eBook Secrets of a Travel Ninja is now available here!

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