Do you remember when you got your first credit card? I do. Even though it was well over 30 years ago, I remember it like it was yesterday.
I was sixteen years old (yeah, they did that back then) and I got a shiny new silver credit card in the mail from an upscale department store. The limit was $300.
My initial thought was, “Woohoo! I’ve got $300 to go spend at my favorite store!”
Yeah, that’s just one of the ways credit cards can be really, really dangerous. But it’s not the only way.
Today I’m going to share how credit cards are once again getting people into serious trouble, and what you can do to keep yourself out of danger by using your credit card like a debit card.
Today’s Credit Card Statistics
I remember thinking after the housing crash of 2008 that we smart Americans would learn our lesson about carrying too much consumer debt.
My husband and I were one of the hundreds of thousands of families who got hit hard by the recession.
We had tens of thousands of dollars in consumer debt and a bloated mortgage. It took us several years to dig our way out to the point where we could comfortably make the payments on our debts.
After such intense struggles for many years, we are committed to finishing our path to debt freedom. Even still, we are deathly afraid of having credit card debt, even at the much lower balances we’re working on paying off now.
But many people are back into a comfy place where they’re happy managing the minimum payment.
Check out this stat from a recent Wallet Hub 2017 Credit Card Study:
“The $33 billion in credit card debt that we added in Q2 2017 is 45% higher than the post-Great Recession average. It also wiped out our Q1 paydown.”
Yep, credit card balances are on the rise again. As of the second quarter of 2017, Americans were carrying a total of $936.10 billion in credit card balances.
What’s more, the average credit card APR is 16.15 percent according to this article.
But, what’s so bad about credit card usage? Why is it so dangerous? Consider these facts.
Credit Cards Take Away the Reality of Spending Money
When you go to the store to buy something, and you pay for it with a credit card, you don’t get the same emotional “check” when you’re paying with cash or with a debit card.
When you actually see money leaving your hands, or when you immediately write an expenditure in your checkbook because you’ve paid with a debit card, you get to experience the real feeling of seeing money leave your account or your wallet.
With credit card purchases, you store the expenditure in your mind’s “later” file and it’s more easily forgotten.
Credit Cards Create the Illusion of Having More Money
Another problem with using credit cards to pay for purchases is they create the illusion that you have available money. But really, all you have is available credit. This is exactly what they did for me when I got my first credit card at age sixteen.
Growing up in a family who always struggled to make ends meet meant I didn’t have money to spend on extras. When I was old enough to get a job, much of my paycheck went to my mom (my choice not hers) so there would be enough money to feed our family and pay the bills.
Getting a credit card with a $300 available balance presented me with a way to have things I couldn’t otherwise afford.
There was no way I could afford to spend $300 on new clothes. But, if I worked extra hard, I knew I could manage the $25 a month minimum payment the store card required.
The problem was I had now created a dangerous cycle. Instead of paying cash for my clothes, I purchased to the point of whatever was available on my credit card limit.
My card was maxed out for about ten years. I don’t even want to think about how much money I paid in interest over that decade.
You see, I was under the illusion that because I had available credit balances, I had money. But, that’s simply not true.
Credit Card Companies Reward You For Spending
Another danger to credit cards is that they often reward you for spending money. They reward you with points, with cash, or with gifts from a gift catalog.
These types of rewards can make it really appealing to spend more money than you would if you were paying cash. This can add up to credit card balances that you are unable to pay off each month, which means you’ll have interest payments that will likely outweigh any rewards you are earning.
Debitize: A Tool for Using Your Credit Card Like a Debit Card
That’s not to say there aren’t benefits to using credit cards. Healthy credit card use can help you build your credit score and to teach you to use credit wisely if you’re paying off your balances in full each month.
If you’re sold on using credit cards for your purchases, I highly recommend taking advantage of a free service called Debitize.
How Debitize Works
Debitize helps you take control of your credit cards in four easy steps. First, you open a free Debitize account.
Second, you link your credit card to your bank-level security Debitize account.
Third, you add a funding account such as a checking or savings account.
Fourth, you verify your identity using their secure server.
From there, every credit card purchase you make is withdrawn from your checking account at the end of every day, thus turning your credit card into a debit card.
The Added Value
When I talked with Liran Amrany, the founder of Debitize, he had said he wanted to go above and beyond and create that added value that you don’t ever see from the financial world. He was right 🙂
If you have ever sent money using Venmo, invested using Acorns, or collected payment via Stripe, then you have used Plaid before. – the same service Debitize uses to ensure your security for transferring funds from your checking account to your credit card account via the Debitize platform.
To add to its security, Debitize also has a feature that will allow you to set a minimum balance for withdrawal on your checking account. This means it won’t pay your credit card bills if your checking account balance goes under a pre-determined amount that you can change at any time.
Optimizing Your Credit Score
Your FICO score is made up of five different factors, with one of them making up 30% of your score – credit utilization. Credit lenders like to see you have less than 10% of your total available credit in use. For example, if you have a credit card limit of $10,000, then carrying a balance below $1,000 throughout the month would be ideal.
Debitize does have a premium feature where instead of paying off your balance once per month, they will do it every week. The premium feature does cost $3/month and is ideal for those who charge everything to their credit cards in return for the rewards.
My Interview with Founder of Debitize
Do We Like It?
The bottom line is we don’t want you to carry credit card debt. Ever.
The easiest way to stay out of credit card debt is to grab a pair of scissors, cut your cards up, and never use them again. However, after doing this long enough, we know this just isn’t going to happen for most readers 🙂
If you are dead-set on using credit cards for your purchases, do yourself a favor and open a Debitize account on iOS or Android and they will give you $10 just for giving them a try! Your future self will thank you for not building a burden of credit card debt balances that will hinder you from reaching your financial dreams.