Let Freedom ring
Let the white dove sing
Let the whole world know that today
Is a Day of reckoning
-Gretchen Peters
CNBC superstar Maria Bartiromo, Fox Business News host Dave Ramsey and myself have one thing in common: None of us have credit cards.
When three people who
know about money go to the extreme of not owning any credit cards, others
might want to take note.
Credit cards play the ultimate sucker game with
consumers. They know everything about
you. No matter how strong you are they are going to keep trying to tempt
you.
100 percent of people with credit cards tell me that they pay off
the balance of their credit cards each month
Since the Federal
Reserve Study of Consumer Finances says that 60.3 percent of credit card holders have
a card balance, it means that
many people are living in fantasy land.
Credit card companies know how you spend, where you spend
and what you spend it on. They know what
times of the year you are looking for extra cash and situations where you might
blow through your budget. You give them that
information every time you use your card.
Since Maria, Dave and I don't have cards, we make that information about us tougher to
find.
Joe Nocera’s 1990
book, A Piece of the Action is one
of the greatest business books ever written. It is the history of personal
finance and credit cards. Nocera wrote about Andrew Kahr, who got Household
Finance in the credit card business and
was the founder of First Deposit Corporation (which became better known as Providian). Kahr had a knack for using mathematics and marketing
techniques to find people who would never pay off 100 percent of their credit card
balance. His companies made a fortune, like all credit cards
companies do.
It never ceases to amaze me how many people think they are smarter than the credit card game. It reminds me of people who are trying to outfox casinos.
Christina Binkley's book about casino companies, Winner
Takes All, talked about how casinos
like Harrah’s, used their "rewards card" system to track the gambling habits of
their customers. If a casino can track your spending habits, imagine what a credit card company can do. Las Vegas was built on a lot of people who thought they were
smarter than the odds makers. I see the
same mentality with credit card users.
I have the same conversation often. People defend their credit card use and say
they “pay off the balance” or “make a killing in rewards points.” I've had the exact same conversation with people who tell me
how they are beating the casinos by getting complimentary food, drinks and
rooms. I've never seen a profitable business give away more than
they take in. Casinos and credit cards
companies are two of the most profitable businesses around.
People tell me they are paying off their credit cards every
month. I suspect they sincerely believe
it. The hard data says otherwise. Someone is part of the 60 percent of Americans who
currently has a balance.
People need to go back through the last couple years of
statements and verify that it is true.
Usually when I have people do that, they find an occasion or two where
they "slipped up."
Sometimes that "slip up" lasts for years or decades
Many of the people who believe that they are paying off
their credit cards also have car
payments, furniture loans and second mortgages on their homes.
I don't have those
and I doubt Dave and Maria have them either. Most debt is bad debt but credit
cards are the most insidious of all.
I suspect the anonymous nature of obtaining credit with far away banks helps
contribute to a lack of accountability.
I've always done my banking with small town
bankers who I personally know. I had to
look them in the eye and tell them what I was spending the money on.
It was often an uncomfortable but valuable experience. Sometimes bankers would talk me out the loan
or tell me I couldn’t afford it.
An officer in a consumer loan company once told me that they
focused on small towns and rural areas.
People in small towns
would do what it took to pay their loans as they did not want to lose face with
their neighbors.
You don’t lose face if your “bank” is the South
Dakota branch of a New York bank and the collectors are located in
India. It makes it easier to take on more debt than
you can handle.
Small town bankers taught me the skill of money management
and discipline. None of them tried to
tempt me with “cash back” offers. None
of them tried to hit me for 24 percent or 36 percent in interest either.
Most credit cards come from “too big to fail” banks. The same ones that we, the taxpayers, bailed out. If you look at the
list of the top credit card issuers and look at who got bailout money, they are usually the same names.
You may not see the bankers
in person but they know a lot of about you. Or they think they know a lot about you. The banking collapse and bailouts proved
that the bank’s didn’t know us as well as they thought they did.
They only know how to sell us on their products. They do that extremely well.
Knowing a customer and knowing what touches his or her hot
button are two separate issues.
The only way to keep the companies from acting like Big
Brother is not to give them the
information to start with.
That was a conclusion that Maria Bartiromo, Dave Ramsey and
I came to some time ago.
Today is the day to cut up the cards. Today is the day to stop letting “too big to
fail” banks hit you for outrageous interest and fees. Today is the day that you stop the card
companies from tracking your spending and what restaurants you eat at.
Today is the day when you proclaim your freedom from credit
card overlords.
Let me know when you do.
Don McNay,
CLU, ChFC, MSFS, CSSC, is one of the
world's leading authorities in helping
injured people and lottery winners deal
with complex financial issues.
McNay is also an
award winning syndicated financial columnist.
He founded McNay Settlement Group, a structured
settlement and financial consulting firm, in 1983. The company's primary office is in Richmond,
Kentucky.
McNay has Master's
Degrees from Vanderbilt and the American
College, is in the
Eastern Kentucky University Hall of Distinguished Alumni and has written two
books. Most recent is Son of
a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery
You can write to Don at don@donmcnay.com or
read his column at www.donmcnay.com. You can reach him on
Facebook at www.facebook.com/donmcnay and
Twitter at twitter.com/Donmcnay
McNay is a lifetime
member of the Million Dollar Round Table and has four professional designations
in the financial services field.