Boycott Credit Cards And Other Debts For Success

The American consumer is duped on a regular basis by the FICO credit score system. It's a very clever marketing scheme: try to follow our arbitrary rules and we will give you a score, we will then use this score to determine how much money you need to pay us to use our services. It's a great dog-and-pony show. Consumers are too focused on competing to raise their credit score number to even bother looking deeper at the trickery.

Here is the bottom line Americans will not accept: YOU DO NOT NEED CREDIT.

This is the first lie the FICO credit score system convinces consumers to buy into, you need a good credit score. How do you get a good credit score? By using credit in ways that help credit card companies such as:

• Keeping a balance big enough to accrue some interest, but not going over 50% of your credit limit.
• Paying monthly payments to bring down the balance and interest accrued.
• Opening up new accounts and keeping them in good standing.

What does the FICO system promise in return for your hard-earned money lining their coffers? Why, preferential interest terms so the next time you borrow money you can pay a little less in interest. Really, the promise is if you play by their rules you can pay them a little less money. A good or great credit score does nothing to prevent you paying them money.

If you still don't believe anyone "needs" credit, just look at the recent CARD act limiting credit card accounts to anyone under 21 without a cosigner or proof of income. In other words, Congress looked into the entire system and realized credit is not a necessity to be a successive adult, and imposing and age limit gives young adults a chance to live debt free.

It isn't easy to give up a love affair with credit. Consumers must take active steps to remove the strangle hold credit offering companies enjoy on their personal finances.

Stop buying anything new if you must finance it.

Warren Buffet, one of the richest men in the United States, is often quoted on not buying anything new. The man famously lives in a modest home and drives a modest vehicle. Interpret this as an extreme quirk, but the man understands what it means to hold onto a buck. Americans struggle with the idea of not buying anything shiny, brand new and face a constant barrage of marketing that tells them to do otherwise.

Compare for a moment the advertisements for a used car lot and a brand new model from the manufacturer. Used car lot commercials are poorly produced, and clearly filling a bargain priced advertising slot. Advertising for new cars are sleek, the same quality as the television program they are shown in, and occupy primetime advertising slots. From the advertising alone, a consumer naturally desires the new car, not a trip to the used car lot.

It takes self discipline and a little math to resist the temptations to buy new items.

Compare the cost of a used model to a brand new model.

For the brand new model of any item you would finance, use an online tool to calculate the total cost of the loan. Let's look at another big ticket item often financed: major appliances, such as washers and dryers. Middle of the line, brand new front loading washers and dryers run about $1,000 a piece, or $2,000 total. Slightly used washers and dryers run anywhere from $100-$250 a piece in local classifieds. Even taking quality into consideration, over the expected 10 year life of the appliance, you would have to buy between 4-10 of the used washers and dryers in those 10 years to cover just the retail price of the brand new washer and dryer. Used appliances do fail, but certainly not at that rate. Over 15 years, it would still be unusual to go through even as many as 4 used washers or dryers. This didn't even take interest into consideration.

Lesson: You always save yourself money buying large purchases used instead of financing brand new items. On the question of quality, even repeatedly buying used items over the anticipated life span of the brand new item will rarely exceed the original cost plus interest of buying brand new on credit.

Start a cash savings amount equal to your current credit line, then cancel the card.

Many Americans justify credit cards as "emergency funds," and then use the credit line for non-emergency purchases. Here's why this system never works. If you can't save up enough cash to cover the potential amount of emergency (your credit limit), how will you ever pay monthly payments to credit card once you use it? In fact, most financial emergencies result when income streams cease, such as a layoff or medical condition. Charging your way through the emergency only compounds the problem, as you end up in a situation even less likely to repay the loan.

How Anyone Can Find Money to Start a Savings Account

Start slowly, once you pay off a low credit limit credit card, before applying that payment to the next card, instead pay the payment to your savings account until it reaches the limit on the old credit card. For example, say you owe $1,000, $2,500, and $5,000 in credit card debt. If the $1,000 credit account is at 18%, paying $100 per month will take you 11 months to pay it off. However, it will only take you 10 months of paying $100 to your savings account to net $1,000.

Here's an interesting fact, the larger the balance you seek to put in savings the less time it takes you in comparison to paying off the credit card. Let's look at the $2,500 balance, and assume 18% interest with the minimum payment of $62.50. According to Bankrate.com's "True Cost of Paying Minimum" credit card calculator, it will take you 204 months to pay off the $2,5000 balance and end up costing you $3,173 to do so. Contributing $62.50 to a savings account once the account is closed will net you $2,500 in savings in only 40 months, in only 20% of the time it took you to pay off the credit card only paying the minimum.

Lesson: Using credit cards as emergency funds isn't a safe way to prepare for an emergency, and making goals to save up in cash your credit limits before you cancel the card will allow you to be prepared for any emergency.

Use alternative forms of payment for traditional credit card purchases, like shopping online.

Giving up a credit card typically means a consumer switches to a debit card or check card, one with a credit card logo that doesn't accure interest and instead pulls purchases straight from a checking account. This form of plastic payment will prevent a consumer from falling into the vicious interest paying cycle, and is also perceived as safer than carrying around large amounts of cash. Is this true?

On one hand, pulling cash, especially from an ATM, should be done as minimally as possible to avoid fees. However, consider this: carrying $100 in cash if you are a victim of theft, you lose $100 and can't get it back. If someone steals your debit card access, from an illegal scanner at a gas station or on an ATM machine, the person can clean out your entire account. Provided you bank has insurance, and you should only use check cards that offer some type of insurance, you might get this money back. Doing so takes time and in the meantime you are the one left in a lurch when it comes to paying bills.

Other Ways To Pay That Usually Take Credit

This isn't to say check cards are a bad solution, they just aren't the ONLY solution to purchases where cash isn't ideal.

• Consider an online bank account with Paypal to provide a buffer zone to your bank account. To transfer money to Paypal only requires an account number and a routing number, the same information on any paper check. If your Paypal account is somehow compromised, only the money you had in the account is available to the thief, not your bank account. Plus, security for Paypal is very high provided you don't fall for a silly phishing scam (i.e. never give your password or log in information in response to any "official" looking email from a company you do business with, if they are legitimate, they have your information already).
• Use prepaid Visa, Mastercard, or American Express gift cards for purchases. There is a small fee for each use, but consumers can work around this in two ways: only buy gift cards in the amount you plan to spend, or accept the small fee on each purchase as a way to avoid exposing your personal information.

Lesson: Credit cards seem to be the only "safe" way to pay for certain items because of the fraud protection services (you aren't responsible for any unauthorized charge over $50 when reported as soon as the fraudulent charge is noticed). However, there are other protections out there that allow purchases to be made without cash, and without requiring a credit card.

Overall, credit is sold to the American consumer as something to be proud to have, but all it really means is you don't have the cash to pay. It wasn't that long ago, just a few generations, when credit was looked at as something negative and for people of low class. The main difference between then and now? Mass market advertising.

Today's buying culture is one of what you "deserve to have," not what you can "afford to have." People buy many purchases on credit thinking the aim of the game is to just balance all of the monthly minimum payments within their monthly budget. And if you do have the cash to pay for an item, but don't want to part with your money for it, that should speak volumes about whether or not the purchase is wise.