Credit & Credit Cards

Hello again friends and welcome 🙂 Last week I wrote about how credit card companies profit on our insecurities to keep us drowning in debt. This post I want to talk about credit, credit cards, and how to make them work for you by giving you some practical tips and strategies on how best to utilize them. Let’s jump in with a video that cuts straight to the heart of why credit cards are so dangerous. Brace yourself, if you’re in a lot of debt this is a tough one.

Why Credit is Important

If you need to take a second to regroup after that clip, go grab a cup of tea or coffee and let it sink in. If you’re in a lot of credit card debt it’s important not to panic. The first, and probably most important step to getting out of the debt cycle is to accept that you’re in it and need to change. My come to Jesus moment was when I got a divorce from my ex-wife and discovered I was in close to $126K of debt. Credit cards, student loans, medical debt… I had a little bit of everything. It took me about ten years to pay most of it back, and feel comfortable with my finances. But maybe more important than paying back the money I owed is that I trust myself not to make the same mistakes twice. Let’s explore some of my financial missteps and how you can avoid them by implementing some simple practices. Meet me on the firing range.

Guns & Credit Cards

When I was 13 my father took me to the firing range. We weren’t into gun culture, we just liked to fire off a few rounds once and a while. My father is big on safety though. He does things by the book, is methodical and when he taught me to shoot he did not break suit. He said when he was in the Navy they taught him to respect his weapon because anything that can end your life deserves a special care and attention.

Credit cards may not be able to end your life in the same way a firearm can, but if you let it debt will consume you. It will dominate your thoughts and choices to the point of changing your lifestyle. For ten years I let my debt control my destiny. This may seem dramatic, but I took one vacation and I shopped almost exclusively at thrift shops the entire time I was paying off what I owed. It became the deity to which every choice I made to deprive myself of the things and experiences I enjoyed, were sacrificed. As my friend jenny would say, “none of the buenos”. If you don’t consider that a death to some degree, you may be a member of the same over achievers club as I was.

It took a great strength of will to break free that mind set. I still struggle with it a little. But the more I learn to trust myself, the more I can relax without thinking everything I worked so hard to achieve will fall apart in a broken pile of hopes and aspirations. That’s not to say that I won’t fall back once and a while. But the difference now is that I have the tools and discipline to regain financial security. I don’t have to fumble my way through my mistakes again and relearn the skills that made me successful the first time around. So in that spirit, let me show you some of the tools I’ve gained and hopefully you can learn from my decade of misfortune.

Welcome to My War Room

The Plan:

Attitude

Commitment: I’d like to preface this plan with a prerequisite; this is where you need to commit. Here is the place where I believe a majority of people declare defeat. It’s easy to get hyped about living the life of your dreams, but it’s hard to wake up at 4:30am, commute one and a half hours to a job that you probably don’t like and put in 55 to 60 hours a week in order to achieve it. Once you’ve committed to do the work, you’re ready.

Commitment and a tenacious attitude is the base from which all other orders flow. The general so to speak. As I said above it’s easy to lose momentum. So you’ll need to come up with some fail-safes to help you while you’re in the trenches, to keep your spirit up. One thing that helps me is music. Playlists and various artists I pop on when I need a little extra boost of confidence to keep my head down when I want that new travel mug. Jay-Z is a go-to for me, especially the song, “Come And Get Me“. But most of his music is about making his way hustling and that’s exactly what you’ll need to embody.

Focus: A company’s goal is to get you to give them your money. They do this through advertising that preys on your insecurities. “You want to be loved? You NEED this product”, is their sirens call. Ads work because people are attracted to executive function. Add a slick, multi-million dollar ad campaign designed to make you feel insecure, and you’ll probably be throwing your money at whatever you think will imbue in you the confidence in which they are advertising.

This means you’ll need to focus on your goals, not the feelings of what you’re missing out on. Tara Brach has many talks on FOMO, the fear of missing out, which may be a good resource if this is a sticking point for you. Two tactics I deploy to protect myself from their barrage of ads is to mute commercials on streaming services, and use an adblocker. I borrow movies and TV shows from the library which have no commercials. And when I’m on a site and an ad does breach my adblocker, I quickly avert my eyes. This helps cultivate discipline, which you can employ to lessen the alure of companies desperate attempt to cull your money. Because they need you more than you need them. It also helps to remember that models are really actors who are getting paid to pretend they’re confident and capable to get your money. It’s all an act. Don’t forget that 🙂

Practices

Budget: Put a budget together to track your monthly expenses. Dave Ramsey’s site is a good place to learn the basics. It’s important to be intense during this phase because this is where you are teaching yourself the discipline to stick to your new lifestyle, and another area where people often give in. It isn’t easy changing everything about how you handle your finances. But the payoff is financial freedom and the confidence to handle your money wisely.

Credit Unions: Ditch your bank and join a credit union. You will build credit by virtue of being a member and without the liability of the debt you would have if you are using a credit card or loan to obtain a good credit rating. Credit can be determined by how well you handle debt. If you owe money and you make payments on time, you’re credit worthiness goes up and is reflected in your credit score. But if you are a member of a credit union, you build credit by just being a member. No debt, just benefit.

Credit Cards: Now it’s time to get a new card with intention. Look for a card with the highest cashback percentage using the focus you’ve acquired from muting ads. Don’t fall for the frills, no “special deals” on products with loyalty points for purchases from certain companies or trendy restaurants… Exclusivity is the weapon credit card companies employ to strip you of your security. I.e. you are better than those who do not have the status you gain because of the card you hold. Your “golden ticket”. But those “beneath” you also don’t have the debt you hold. And what happens if you lose the “privilege” of owning their card? Who’s really in a better financial position? Plus, once you’re financially secure, you can pay for those things with cash.

Now, set the limit to the sum of your monthly expenses less your rent. Use your card for that purpose alone and pay it off at the end of every month, and use the budget you made to ensure that you’re living within your means. If you set aside $150 for the month to spend on takeout and you run out of cash before the end of the month, you’ll have to make coffee at home instead of going to Starbucks. You’d be surprised on how much the average person spends at coffee shops a month. But you’ll find that out when you do your budget (;

Speaking of living within your means, turn off overdraft protection and let your card be declined. When you go over your limit it’s embarrassing, but a moment of shame is worth the $35 plus the compounded interest you’ll accrue. That may not seem like much, but if your balance is $6K, the average sum of US card holder’s debt, then your compound interest accrual at 24% (the average APR) is $150. Add the $35 overdraft “protection” fee and suddenly you owe $185 of compound interest. That’s more than half of my food budget that the average card holder is paying for the privilege of owing somebody else money. I only get $20 a month cashback but it feels good to make a company that profits from fear and insecurity pay me.

Establishing Security Over Credit

Credit is necessary. It’s used when we make big financial decisions like buying a house or car, starting a business, having children and much more. No wonder money is so tied to our security. But keep in mind that people are doing the above sans credit cards everyday. You need to decide what’s more important to you, looking good so other people are jealous and envy your lifestyle, or feeling secure knowing your finances are in order. The bonds that stem from people who love and enjoy you, less the trendy trappings (Stanley Cups anyone) are what’s important. To me anyways. When your focus is on people liking you and not your things, that’s when you’ll feel loved.

Feature Image Credits: “pattaya” by Roberto.Trombetta is licensed under CC BY-NC 2.0.