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Credit Cards: The Anatomy of a Seduction

Posted on 09 May 2010 by admin (5)

Ah, credit card debt. The great 20th century invention now enters its second century. How does something that we all know is SO bad for us continue to seduce us SO easily?

As with all problems of addiction, it helps to understand how you get seduced in the first place, what actions you take that contribute to your addiction, and what the likely outcomes are if you continue with your addiction. After you understand these things, it will be much easier to make the decision to stop hurting yourself. I’ll even tell you how to turn the tables in your favor and tell you the most compelling reason why you should.

How You Get Seduced

Credit card companies make it very easy to live in a fantasy world. How do they do this? Primarily, with two easy steps:

  • They give customers lines of credit that are typically far larger than the customer can afford to pay off with their current income and expenses. Resulting customer perception: “Wow, I’m worthy of this! I’m rich!” Reality: No, you have the same income, savings, and expenses that you did yesterday. Now you just have the ability to increase your debt.
  • They enable customers to put off thinking about the long-term impact of their spending decisions with low monthly payment requirements.

How You Participate in Your Undoing

Customers then make it very easy for credit card companies to make money. Mostly by doing the following things:

  • Customers use their credit cards to give themselves fake pay raises. Meaning this: if Jane’s take home pay is $2,000 a month but she wants $2,500 per month, she just charges $500 worth of stuff and, presto, she’s given herself a fake pay raise. Results: (1) Credit card company gets transaction fees, and (2) Jane owes money she doesn’t have.
  • Customers make the minimum monthly payment required and carry balances. Result: Customers instantly incur interest rates that are higher than virtually any other kind of debt except that available from loan sharks and the mafia.

False Optimism

I love an optimist. I AM an optimist – In fact, I often say I am the most optimistic man in America. But, here’s the thing: there’s a line between optimism and delusion and you have to know where it is in order to give yourself the best shot at realizing not only your dreams, but your potential. Here are just a two of the false assumptions that people make in regard to credit cards with the best intentions:

  • I’ll be able to pay this off because I’m sure to make more money next year, after I get a raise, when my new business takes off, etc.
  • I must be able to afford this; otherwise the credit card company wouldn’t have given me this line of credit.

Real Consequences

Credit card companies operate by the laws of capitalism. To that end, they will have no problem, nor any legal prohibition from, doing any or all of the following things:

  • Decreasing your line of credit with little or no warning if you have missed a payment or are late on a payment
  • Decreasing your line of credit with little or no warning if they determine, in their sole judgment, that you are no longer a good credit risk
  • Suing you for payment, which could potentially force you into bankruptcy, or, at the very least, force you to unnecessarily and swiftly downsize your lifestyle

Be a True Optimist

True optimists set the stage of life in a way that is to their own best advantage. You want to run a race and win? Eat right, train hard, sleep enough. You secretly don’t believe in your ability to win the race? Hire an expensive trainer, buy the coolest running gear, don’t train much, and settle for image rather than authenticity.

If you want to earn more money so you can buy more stuff, have more experiences, or live more luxuriously, be a true optimist: make that your goal and go after it with all guns blazing. Believe in your talent and set the stage to your best advantage rather than create the severe disadvantage and misery of being in debt. Here’s how from a financial perspective: create and live on a budget that reflects reality and your priorities, and nurtures your potential.

The Optimist’s Budget

  • You pay for necessities first: food, clothing, shelter, and savings
  • You pay for your personal and professional growth second: education, training, business investments
  • You pay for fun third: vacations, entertainment, hobbies, luxuries
  • You pay for all of this with the actual take home pay that you have right now. If that means you can’t live in the fanciest neighborhood, or you can’t buy designer clothes or eat out as often, it’s worth it.

What if You Are Already in Debt?

This will be the subject of an upcoming blog post. Meanwhile – start living on the Optimist’s Budget and stop digging a deeper hole. If you need immediate assistance, call me at 212-308-5495 or email me at thetaxxman@aol.com and let me help you start moving in a better direction.

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5 Responses to “Credit Cards: The Anatomy of a Seduction”

  1. keelphoto says:

    Great post Scott! I am always looking for new viewpoints on ways to get out and stay out of debt. I have falling into some of these traps such as false optimism….It is good to see them for what they are.
    thanks,
    Mike

  2. Susan Slocum says:

    Really love how you framed the budget…great way to prioritize!

  3. Joe Kavusak says:

    Scott, your right on point with everything you posted! keep the posts coming!

  4. Jay Durante says:

    Scottso,
    Very well written. SImple, to the point, and dead on. Your clarity and insight into this subject has resonated with me. Thank you. You are the best!
    Jay


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