Initially oil companies and merchandisers issued credit cards to promote loyalty and convenience for their customers. I remember the thrill of being accepted for a Sears Revolving Charge Card. I had arrived. Time passed and I discovered the oil company cards. Texaco, Chevron, Shell, Exxon, I had ‘em all. Then the greatest feat of all: a Bankamericard and later, an American Express card.
I was lulled into paying the minimum monthly payment, and predictably, the balances rose. After a time, I realized that I was mentally budgeting to pay the minimums and had no plan of ever paying off the balance. That frightened me. Months of complacency followed. Finally, I borrowed $3,000 from Deposit Guaranty, bought some furniture for the house and paid off all the credit cards, vowing to never get in that shape again. I have honored that pledge for almost 30 years.
I did not stop using credit cards, however. No, not at all. In fact, I used them every chance I got. Convenience and recordkeeping are strong incentives to charge. I didn’t think it made any difference since I paid off the cards every month.
Paying with a credit card and then paying the monthly bill in full is the same as paying cash, right? Wrong! Kroger conducted a study some years ago and found that people who use plastic spend 15% more than those with cash in hand.
For years after I heard about the Kroger study but I doubted its validity in my case since I have unwaveringly paid my credit card bills in full every month since 1974 and have believed myself a cash manager extraordinaire. Those “other people” just couldn’t manage money like I could!
Several months ago I decided to wean myself off the credit card habit and start paying everything in cash just to see if it made any difference. It ain’t as easy as it sounds, even for one who has consistently zeroed the account every month.
For starters, it’s a hassle to buy gas with cash because you have to
pay inside rather than at the pump. Additionally, I have built up a month’s worth of expenses on my cards so, initially anyway, I had two months of expenses to pay during the first month of weaning.
My spending habits are definitely changing. Items that I thought nothing of charging are now cause for second thought. Do I want it bad enough to fork over cash? I mean real green dollars! Even paying by check seems more costly than merely charging. If this trend continues, I think that Kroger’s 15% estimate might be low for me. I may save myself to prosperity just by paying cash. Dave Ramsey, are you listening?
This brings me to the cause for writing about this whole subject of credit cards. Having issued five credit cards for every man, woman and child in the United States, banks are coming up with a new use for plastic. Charge your rent!
According to a story in a recent issue of The Los Angeles Times, nearly a million tenants can use their cards to pay their rent, thanks to an arrangement between Visa and the biggest U.S. property manager, Chicago-based Apartment Investment and Management Company. Not surprisingly, Visa touts the service as convenient for renters and landlords. It’s convenient for Visa, too.
Visa’s initiative is part of its plan to encourage credit card users to pay everything by charging. Experts say the industry is saturated and the only way to grow is by having customers charge rent, car payments, groceries and other traditional cash payments to their credit cards instead. This doesn’t strike me as a good idea.
Americans are not doing well at managing personal debt. Bankruptcy statistics are depressing and getting worse every year. We simply buy more than we can pay for. Some blame the ease of borrowing and, admittedly, it does seem that credit card companies have gone berserk in issuing cards to anybody and everybody without regard to payment history or ability to pay. And now we’re encouraged to charge even more.
I’m reminded of the old saying that no one who was debt-free ever filed bankruptcy. If buying is a good idea, then we might as well face the fact that it’s payday someday. By paying cash we defer some of our gratification, but we don’t get in financial trouble. Better to keep the plastic in your pocket than commit to something that will cause big problems in the future.
Thought for the Moment — The time for extracting a lesson from history is ever at hand for those who are wise.
— Orator and statesman Demosthenes (384-322 BCE)
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at email@example.com.
This column first ran in the April 29-May 5, 2002, issue.