Remember Bernie Madoff? That guy who made the massive Ponzi scheme and is currently sitting in a jail cell because of it? Well, there’s another huge Ponzi scheme robbing our nation blind, and probably every person you know is caught up in it. I’m talking about credit cards.
Alright, alright, credit cards don’t actually work exactly like a Ponzi scheme, but the similarities might scare you. You get yourself into a massive pile of debt, and then you get another credit card to pay off that debt, and then you get another credit card, and another one, until you’re up to your neck in a pyramid of little pieces of plastic that are all costing you more and more money. Sounds kind of like a Ponzi scheme to me.
Today, the total national credit card debt is over $800 billion, and that number isn’t going to get much smaller anytime soon because credit card companies are going to keep scamming Americans, and they’re going to keep getting away with it. If you really look at what these credit card companies are doing, it’s sort of mind-boggling that it’s even legal. And if you don’t know what I’m talking about, I’m going to spell it out for you.
This is why credit cards are a scam! Let’s go!
Why Tack on More Debt? – Digging a Deeper Hole
In today’s world, it’s pretty much a necessity to have a credit card. Building credit is important for everything from buying a house to getting a loan to even getting your dream job! But, if you already have a bunch of debt, should you really be getting a credit card?
Student loan debt is reaching all-time highs. Most recent college grads leave school with a diploma and tens of thousands of dollars in loans that they have to repay. Then you have your auto loan to pay off too, and maybe you even have a mortgage to pay off. With all those monthly debt payments, why would you go out and add another monthly expense by getting a credit card?
Credit card companies will try to tell you that getting a credit account with them is the best thing you can do for your financial future, but if you’re already struggling with your current debt obligations, the last thing you want to do is add in another one. A lot of people nowadays are choosing not to get a credit card until they’ve paid off their student loans, or paid off their car, or are just in a good financial situation in general.
And why are credit cards so dangerous if you already have debt? Well, because they make it way too easy to spend money that you don’t have.
Spending Money You Don’t Have – No Safety Net
Let’s say that you’re living debit card-only and you go out to buy a new watch or something else that you don’t really need. You go to swipe that piece of plastic, and suddenly it comes up on the register that you have insufficient funds. No watch for you. And while that may be slightly embarrassing, it sort of acts as a financial safety net that prevents you from spending money that you don’t have.
On the other hand, a credit card is going to enable you to make that unnecessary purchase and sign yourself up for a life of servitude to your credit card company. It may seem crazy, but a ton of people don’t really understand how credit cards work and don’t understand that they’re going to have to pay back every dollar they spend plus interest.
So, let’s say you bought that watch with a credit card, and suddenly your credit balance goes up to $2,000. Then, when you go to check your other accounts, you realize that you don’t have enough to pay off your balance. What happens then? Well, your credit balance is just going to keep growing and growing and growing, making it more and more difficult for you to ever pay it back!
Crazy Interest Rates – The Real Scam
I’ve met people that didn’t even know that their credit cards had an interest rate. That is seriously scary, and really just goes to show how little credit card companies want you to be informed about how their services (or should I say disservices) work.
The longer you let your credit balance sit, the more interest it’s going to accrue, which means that you’re going to have to repay way more than you actually spent with the card. Yeah, we’re not talking about a couple of dollars here and there.
The average credit card interest rate is nearly 18% for new offers and almost 15% for existing accounts. That means if you let a $2,000 credit balance sit for a year at 18%, you’re going to be paying $360 more than you should at the end of that year. Let that credit balance sit for another year, and your interest expense is up to $784. This is how so many Americans have gotten themselves into serious debt, by spending money that they don’t have, realizing that they can’t pay off their credit balance, and letting that credit balance sit and grow.
If you already have a credit card, you should be paying that balance down to zero as often as possible. If you can’t pay it down to zero, you should make a plan to pay down your credit debt as soon as possible and avoid paying that interest.
But that’s not what the credit card companies want you to do, they want you to charge you as much interest as possible. And when that credit balance balloons to the point where you can’t possibly pay it off, they want you to take out even more credit with another company who they probably sold your information to.
Having Multiple Credit Cards – Doubling Up the Problem
Having several credit cards isn’t always a bad thing. In fact, there are a lot of ways that having multiple credit cards can help you raise your credit score or score more rewards. But, if you’re already in credit card debt, there’s no way that you should be taking out more credit cards.
If you couldn’t handle the responsibility of consistently paying down your credit balance with one card, getting more cards is only going to enable you to rack up more debt. And the credit card companies know that! Those shady bastards are trading your information around all the time, and it can get really predatory with how they try to identify irresponsible spenders and get them to sign up for more cards.
Any card that you receive in the mail that says it’s a one-time offer or only available for a limited time is trying to rush you into signing up. It always pays to say no to these offers at first and then take your time to research all the options available to you. And I can’t stress this enough, if you’re looking at getting another card, make absolutely sure to read the fine print.
Predatory credit card companies will often hide huge penalties and fees in their agreements that will raise your credit balance to the moon the first time you forget to make a payment. If a credit card agreement seems overly complicated or hard to understand, it’s probably because they don’t want you to understand it. Cardholder agreements should be simple and transparent. If they aren’t, run for the hills.
So, with the massive risk that using a credit card involves, you have to ask yourself the question: do you really need a credit card at all?
Do You Really Need a Credit Card? – Probably Not
There are plenty of advantages to using a credit card. You can build credit, which will help you get better interest rates on loans down the line, and you can usually get some pretty good rewards and cashback. However, if you’re not careful, the negatives of a credit card can far outweigh the positives.
Credit card companies want to convince you that having an account with them is absolutely necessary for life. But, if you’re already in debt, or you just have trouble controlling your spending or keeping track of your finances, then you probably shouldn’t even think about getting a credit card.
It’s way easier to lose track of your spending with a credit card because, let’s be honest, most of us don’t read those monthly statements we get via email. Plus, if you’re racking up a big credit balance, the interest you’re going to pay is going to be way more than any cashback or rewards you’re getting.
If you do get a credit card, use it responsibly. Don’t spend money that you don’t have, pay off your balance as often as possible, and you’ll be good to go. If you can’t do those things, then you’re going to get big-time scammed.