The real way to beat credit card companies
Wow, check out this article in The Christian Scientist Monitor written by J.H. Huebert, a self righteous lawyer-cum-professor who claims he’s beating the credit card industry.
This guy really thinks he’s on to something, doesn’t he? This lone ranger of consumerism; this V for Vendetta masked rebel is single-handedly tricking one of the world’s largest industries into giving him free money.
More like V for Very Naive.
According to cardratings.com, credit card companies made $43 billion in fee income from late payment, over-limit, and balance transfer fees in 2004. $43 billion, and that’s not even counting income from monthly interest charges and annual fees! The same Website tells us that Bank of America—the country’s largest issuer of credit cards—has over $166 billion in receivables!
Huebert seems to think he found a revolutionary approach to beating the system created by these multi-billion dollar companies:
Some cards offer low “teaser” interest rates – as low as 0 percent – for balance transfers, purchases, or even cash advances. We take that cheap money, and when we pay off the balance before the promotion period ends, the card companies actually lose money.
No, actually they don’t lose money.
Look, a credit card company doesn’t get into the multi-billion dollar range by accident. These people are smart, and dare I say even smarter than our hero, Mr. J.H. Huebert, esq. These companies, being worth billions and billions of dollars, can easily invest millions of dollars into market research to study how consumers behave with a piece of plastic.
They’ve done their homework, and what they found was that when consumers use plastic to make purchases, we actually spend around 12% to 18% more than if we used tangible money. In some cases, we’ll spend up to 46% more! They call this phenomenon “disassociation” in behavioral psychology circles, which just means that when you use money that doesn’t exist today to make a purchase, you don’t feel the sting as you would if you whipped out some greenbacks to make the same purchase.
Sure, Mr. Huebert is very disciplined and pays off his balance every month, so he’s clearly coming out ahead, right? Wrong. How are you winning if you’re spending more money?
Here are some tough lessons Huebert needs to learn:
- When you cheat, you’re only cheating yourself. Mrs. Wolf, my third grade teacher was right! You’re not winning if you’re spending more money by using plastic.
- Don’t spend money you don’t have. Even if you think you know you’re going to have that money, you’re putting your financial health on the line when you spend money you don’t currently have.
- Take your ball and go home. The only way to beat these credit card giants is by not playing their game to begin with.
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Shan is the author and founder of The Apostle of the Turtle.
Excellent post! So many people are of the mindset that if they pay their credit card bill in full each month, that somehow they are beating the system. You don’t have to be drowning in debt-, unable to pay your bills-, credit score down the drain- person, to be losing in the credit card industry. Even those who pay off their credit card every month are still in the category of spending more when using plastic versus cash. Credit card companies aren’t just making money off the people who have over-extended themselves.
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Glad I was not the only one that caught Mr. Huebert’s “brilliant” piece.
How did that guy make it into the Christian Science Monitor as some sort of expert?
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And don’t forget that all credit card companies charge merchants service fees for each purchase you make. Those extra fees that merchants pay compared to when they accept cash obviously direct impact their profit margins which means we will eventually be paying more for those products.