Personal finance: Credit cards will destroy your financial health.

Here’s my opinion. It’s lengthy.

The following is an assemblage of what I have gathered about people’s problems with credit cards and the agreements with those cards. This is my personal campaign to get people off the credit card habit. I have not had a credit card in over 23 years. Still was able to get a mortgage to buy a home and a car loan.

Credit cards are like a cancer and like cancer that destroys your physical health, credit cards will destroy your financial health.

No one NEEDS a credit card to build credit. CC issuers have been running this scam for years and years. A savings account is a better indication of your ability to manage your finances than a bunch of credit cards. With a credit card, you are BUYING a credit profile through high interest rates and annual fees. With a savings account, you are EARNING a credit profile. But they do not care about your ability to save money. They care about your willingness to spend money. They want their card holders to get into as much debt as possible so they can make as much money (interest and fees) as possible for the CEO and stockholders. They could not care less about their customer’s financial burdens or how the CC issuer got them into that situation. The important thing is that it takes individual responsibility to keep that from happening.

CC issuers know human nature. Humans are impatient, forgetful, egotistical status seeking animals, greedy, and not very smart at financial matters. Humans cannot wait to buy something that will make them feel good or look good, regardless of the cost. They will forget to make the payment, incurring a late payment fee and interest charges. They cannot remember how much credit they have left and will overspend, incurring an over limit fee. They will spend more than they can afford, incurring interest charges on their credit balances. The FDIC noted in 2008 that 93% of the $18 billion bank ATM overdraft fees were paid by 14% of their customers. NSF checks added $12 billion dollars to that figure.

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Rewards programs are designed to do one thing and one thing only: to get the CC holder to spend more money than they can afford. There is no correlation between the points earned and the $ value of those points. You may earn 1 point for each $1 charged, but the $ value of those points is closer to $0.01 for each point redeemed. So you charge $50,000 and get 50,000 points, but the $ value of those points is only $500 when you redeem them. The restrictions and requirements are so confusing that it may be near impossible to reap your rewards. An airline ticket may cost 100,000 points at first. But they can change the exchange rate and require 150,000 points for that same ticket. Violate any part of the agreement and you could lose your points and get hit with the default interest rate. To get the points back, you will have to pay an expensive reinstatement fee. The rewards cards, if they do not now, will carry an annual fee. Continental’s annual fee for one of their cards was $85 at this writing. The redemption time period is usually 5 years. The points earned earlier drop off. So, in 5 years, you would have paid $425 in fees PLUS possible interest charges if you did not pay off the balance every month PLUS a point redemption fee for using your rewards. That means the rewards program is worth $0.00 to the CC holder. For every year you delay cashing in your rewards points, it costs you another $85 annual fee. Wells Fargo offers a rewards card for $12 per year. You charge $650 and you get a coupon for a free Burger King Whopper. Let us do the math. Pay $12 to get a $3 coupon for a burger. That burger costs $9. What a Whopper of a deal!!! Drop the rewards cards and save your money for your own rewards program.

Credit card issuers have been manipulating credit profiles on card holders for years. They will use any excuse to justify their actions.

A quirk in the rules for calculating your credit utilization ratio (and manipulating your credit profile) has changed according to a Smart Money magazine article. Now if you have a paid off card that is closed, that credit limit is no longer included in your utilization ratio for that portion of your FICO score calculation. Let us say you have two cards, both with $6,000 limits. One has a balance of $2,900 and the other has a balance of $100. Your total limit is $12,000 with a utilization ratio of 25%. If you pay off the $100 card and close the account, that one $6,000 card limit is no longer included in your utilization ratio. Now your utilization ratio jumps to almost 50%. Oops! Your utilization ratio is too high. Now you are a risk – raise your interest rate on that card for all future purchases.

Open a CC account, it will hurt your score. Close a CC account; it will hurt your score. Don’t use the CC account, it will cost you a dormancy fee. Carry a high balance; it will hurt your score.

Do you have too

– Dan B


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