The Problem With Credit Cards

The credit card is perhaps the single most significant item associated with the Baby Boomer generation. As a war baby on the frontal cusp of the baby boom, I remember my mother’s suggestionproblem with credit that I apply for a Marshall Field & Co. credit card, a department store known throughout the country for its judicious credit issuing policy, in order to establish a credit history. The year was 1970. I was 27 years old and until then had paid cash for everything I owned. She advised me to purchase a major item (in my case, a Thomasville coffee table for $250) and pay the balance down over a year’s time. I did this diligently, and the following year I bought two lamps, taking another year to pay them off.

Working as an account executive in downtown Chicago, I also had occasion to take clients out to lunch. I applied for an American Express card and got it, much to my father’s dismay as he had also applied and was refused because he had the bad habit of paying cash for everything and had never built up a credit history like I had.

Not too long after receiving my AMEX card, I started receiving solicitations from other credit card companies. To me, this was a sign that I had “made it.” Until now, I had handled credit wisely. I followed my mother’s advice (I’m still enjoying my hard-earned purchases), and the AMEX card was a charge card, not a credit card, that I paid in full at the end of every month.

However, the credit card companies were infinitely smarter than I. They spent millions of dollars to find out how to sell credit cards to the public. Credit cards were the answer to a better life. Buy now, pay later. Everything my parents worked years to accumulate because they paid cash for everything, I could have now, no need to wait, instant gratification. We could show everybody how well off we were. We wore it; we drove it and we lived in it (clothes, cars and housing we couldn’t afford but what instant credit allowed us to think we could afford). Factories couldn’t turn out the goods fast enough because stuff was the yardstick by which wealth is measured – right? And we were buying lots of stuff. By 1972, personal debt was 25 times greater than it was at the end of World War II and it has been doubling every decade since.

We became the “ME Generation,” and like the welfare system, we have passed on our bad habits to the next generation. We have the lowest savings and the highest personal indebtedness of any nation in the world. We are stealing future income only from ourselves. This is the problem with credit cards.

When used wisely, credit can actually help us save money. In times of very low interest rates, many companies offer 0% financing. This is like paying cash for something but you can pay over time – a much better option than charging a high-cost item on a credit card. Installment credit, as this is known, can be a good thing. Charging something on a credit card can be useful when an unexpected good deal comes along and is only available for a limited time – as long as you can pay it off at the end of the month. If you’re a very good money manager, making all your monthly purchases with a cash-back credit card can save an extra 1-3% per month, but only if you pay off all the debt each month. Credit cards can actually be helpful money managers. Many credit cards allow you to categorize your spending, ie. groceries, gas, restaurants, clothing, etc. This lets you know exactly where you are spending your money which can be useful in establishing a budget.

Let credit get away from you, and you will find yourself in a very bad place indeed.  It’s a lot like dieting. Putting on lots of credit card debt can be done in very short order. Paying it off can take forever.

 

By Candee Wilson
The Saving Lady