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The Truth About Credit Card Debt

6 Minute Read

If you’ve listened to Dave talk for more than 60 seconds, you know exactly how he feels about credit card debt. He hates it.

But do you really know why?

There’s no good reason at all to have a credit card. Despite what commercials, celebrity spokespeople, and the Joneses next door will tell you, responsible use of a credit card really doesn’t exist.

Don’t believe us? The Federal Reserve has found that Americans are approaching $1 trillion in credit card debt.(1) The numbers don’t lie. Credit card debt is a major problem in America.

The Truth About Paying Off Your Card Each Month

We’ve heard it before: “I can pay off my credit card each month. So, what’s the big deal?”

There’s no positive side to credit card use. Even if you pay the bill on time, you’re not beating the system. The reality is the average family household today carries a balance of $15,654 in credit card debt.(2)

Think about it for a second. When you open a credit card account, you’re likely to pay thousands of dollars in interest over the years as you carry a balance. Even if you promise to pay it off every month, all it takes is one lost or missed payment. If that happens, your interest rate skyrockets, your credit score drops, and you get slapped with fees. With just one mistake, you’ve gotten yourself into a big money mess.

Find out how long it will take you to pay off your debt with our simple Debt Calculator!

The Truth About Airline Miles, Cash Back and Rewards

Airline Miles

People love airline miles. This is one of the most common reasons people give for hanging on to their credit card. Let’s say your card offers airline miles and has an $80 annual fee. Hypothetically, if you spend $8,000 on the card every year and pay it off each month, you’ll have accumulated enough points to get a free plane ticket in three years. The only problem? In those three years, you’ll have spent $240 in annual fees alone—and you can buy a plane ticket outright for that amount!

Cash Back

We like cash around here, but this is one instance we don’t recommend it. You have to spend thousands on a credit card to get a measly $100 cash back. Oh, and it’s probably just a credit applied to your account anyway, not actual cash in your pocket. Plus, it might be just enough to cover your annual fee. How about you keep your cash instead?

Rewards

Now let’s talk about the rewards. Plenty of people hang on to credit cards for the sole purpose of using the rewards or coupons they get. This is especially true of store credit cards. Sure, you might get free shipping twice a year or a 15% off coupon every other month—but is it really saving you money? Think about it. You’re so excited to save 15% percent that you spend $150 in a shopping frenzy. That 15% you “saved” goes out the window when you tack on interest—especially if you don’t pay off the balance. Your “reward” wasn’t really a reward at all.

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Truth About Credit Card Debt

The Truth About FICO Scores

Are you obsessed with your credit score? You’re not alone. Our culture has reached the point where we pretty much idolize the almighty credit score. Why? Because we think it somehow proclaims to the world how good we are at managing our finances. In reality, all it does is show how much we love debt. Step away from the credit score, people. It’s okay—you can live without it.

If we’ve heard it once, we’ve heard it a thousand times: “A good credit score shows my ability to manage money and build wealth.”

Not true. As you pay down your debts, you may start to notice your credit score inch up. But as satisfying as it is to make headway on your debts, a high FICO score doesn’t mean you’re wealthy. Your FICO score only measures your debt: how much you have, how much you use, and how often you pay it back. You’ll never build wealth that way.

Here’s another faulty reason folks keep a credit card in their wallets: “I need a credit score to buy a house.”

Who made up that fairy tale? The truth is you can buy a house without having a credit score, but you have to find a mortgage company that does “manual underwriting.” This means they’ll make a judgement call about you based on the details of your actual life rather than simply relying on a few numbers. They’ll look for things like a strong history of paying your rent and utilities on time and a solid employment record.

The Truth About Shopping Online With a Credit Card

It seems like you’ve spent years typing those 16 digits, security codes and expiration dates into every shopping portal on the internet. Finally, everyone from Apple to Zappos has your information “securely” stored. And it’s so easy to pay (and buy, buy, buy) with the click of a button.

You’ve told yourself paying online with a credit card is safer, so that’s a “good enough” reason to keep the card. But did you know a debit card offers the exact same fraud protection as a credit card? So that safety theory is simply a myth. Just remember: Always check your budget first, and before you make a big purchase, sleep on it. Things have a funny way of looking less tempting in the morning.

The Truth About Cash vs. Credit Cards

You will spend more if you use credit cards. When you pay cash, you can feel the money leaving your hand. This is not true with credit cards. Flipping a credit card up on a counter does nothing to you emotionally.

However, if you miss the convenience of a card, use a debit card. It works just like cash. Simple as that.

Credit Card Debt Relief Starts Here!

Are you starting to rethink the precious plastic you’ve been carrying around in your pocket? Start chipping away at your credit card debt today! Dave says personal finance is 80% behavior and 20% head knowledge. If you change your behavior, you’ll change your life!

What would your life look like if you stopped reaching for the credit card? Sound too good to be true? Well, it’s not. We have a plan that teaches you how to transform your money habits and pay off your debt (with Dave’s proven method called the debt snowball). When credit cards stay out of your wallet, money stays in!

Nearly five million people—just like you—have used this plan. Within the first 90 days, those completing the plan paid off an average of $5,300 in debt and saved $2,700. The plan is Financial Peace University, Dave’s most popular money course. Learn how Financial Peace University can help you take control of your money!

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