If Credit Cards Went the Way of the Dinosaur…
September 17th, 2007 by Ana
Friday afternoon I received a comment on my post about saving a cash reserve to kiss credit cards good-bye by Jason Dean of Smart Money Daily. Basically, Jason takes me to task for my views of credit cards as evil, saying:
The idea that an individual, such as yourself, should not use credit cards is fine (though a depressing way to go through life, in my opinion), but the notion that the world would be better off without credit cards is downright perverse.
Jason then launches into a macro-economical argument that if everyone stopped using credit cards, the economy would come crashing down around us. He says:
what Ana is encouraging people to do is to stop spending — the economic effects of which are pretty obvious. If people stop spending, then businesses stop producing and servicing.
OK, I have rolled this in my mind all weekend, trying to organize my thoughts before I replied. First of all, I don’t remember EVER saying “stop spending.” What I do remember saying many times is “Stop spending more than you earn!” Or, as Dave Ramsey wittily puts it, “Act Your Wage.” Seriously…that is what debt is about. Spending more than you can make.
Second point is that both Dave Ramsey and I say to get the $1000 baby emergency fund saved up FIRST…before you actually cut up, pay off, and close those credit card accounts. Get that money in the bank (or money market) so you no longer need a credit card. Then, once you have that little bit of financial security, go kill your debt using the debt snowball method.
Another point I wish to address is Jason’s comment “If everyone…” I’ll be the first to admit the only thing that will ever stop my mother from having and using credit cards would the total destruction of the credit card industry…and then she’d probably try to swipe one or two at least once a week to see if they’ve come back. I don’t think we have to worry about EVERYONE suddenly deciding to spend only what they earn as long as my mother has breath. I’ll bet you can think of at least one person in your family who is the same way.
So Jason, rest assured this won’t be an adbrupt shock to the economy. However, if everyone in America gradually worked their way over to the system of budgeting their money, planning and saving up for their purchases, and becoming debt free I think we would have a stronger economy. Especially without credit cards, which are actually a very recent invention (the first being Diners Club in 1956…so credit cards as a product are younger than my parents!).
Now, for the one little phrase in Jason’s comment that bothered me the most: “though a depressing way to go through life, in my opinion.” Dude, there is absolutely nothing depressing about getting rid of my credit cards! Instead it is liberating! I don’t have to worry about credit limits, due dates, did the mailman bring the statement in time, did the payment get lost in the mail, will there be a database breach and my info get plastered all over the web, is everything secure, and best of all I don’t have to worry about how I will pay a bill if some bad thing happens with my money. Right now, the only worry I have related to a credit card is how to get that $11.46 credit from American Express that they claim is a “reward” for putting up with their 18.84% interest as long as we did.
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September 17th, 2007 at 2:35 pm
You are absolutely right, Ana. If everyone started moving away from spending more than they earn and began eliminating credit card debt, the world would not end. It would definitely be a shock to the world economy if all debt was eliminated tomorrow, but, if eliminated over time, you would see only a gradual tightening in the economy to reflect the reduced spending.
Aside from the obvious economic impact, imagine how much happier many people would be with their lives being that much more secure.
September 17th, 2007 at 9:02 pm
LOL. That’s what you get for challenging me publicly!
I think what the world needs is a little middle ground from both sides. Credit cards are not evil, just as guns are not evil. It what people do with them and the consequences that can arise from improper usage that can be considered bad.
You can have the same argument at an NRA meeting and people will be just as passionate.
CAN’T WE ALL JUST GET ALONG!!!
September 17th, 2007 at 11:02 pm
Patrick, credit cards themselves might not be evil…but I am pretty sure the credit card COMPANIES are! I’ll be working on a rebuttal to your rebuttal soon enough…right now have to deal with a physics test on Wednesday and an organic chemistry test on Friday. Go enjoy your honeymoon and get off the computer!
September 18th, 2007 at 10:03 am
Ana,
I feel like you are reading my mind - I would have written just about exactly the same thing - I can not think of a more liberating life than to never think about debt again!! I am endeavoring to complete a mission that has been called impossible (unless you are a millionaire) and that is buy my first house with CASH!!! I will let you know if I pull it off…
September 18th, 2007 at 11:26 am
Well, let’s get real for a second, it isn’t like everyone in the world is going to shred their credit cards all on the same day. Heck, just think what that would do to the world’s power grid!
The economy would adjust slowly since everyone wouldn’t give them up all at the same time. It would be no different than the adjustment it made when credit cards came into being and people slowly got them.
Ok, guns…no they in and of themselves aren’t evil. Of course neither is cocaine, pot, crack, etc but they are illegal, why? Because they have a seriously negative impact on people. So do credit cards. This is evident by the average credit card debt statistics.
Now, comparing credit cards to guns and drugs is a little unfair, but hopefully the point is served.
Ana, I took a lot of heat over my Good Debt, there is no such thing post, but I didn’t back down and still feel my post was dead on. Keep up the good message, and let’s all change our family trees!
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February 26th, 2008 at 9:35 am
Jason also said we should be net debtors instead of net savers. Yikes!!! That’s what we are as a country, starting fairly recently. The savings rate is NEGATIVE! We’re spending more than we earn year in and year out.
Elizabeth Warren’s work on the increasing income volatility of the middle class is really interesting and shows why being a net debtor is dangerous to you and your family. Especially if it’s a dual income family and/or you have children!
What does saving do? Makes capital available for lending for small business and homeownership…the type of lending small local banks and credit unions do. So saving is not unproductive!!! It fuels the economy too.
Investing also makes capital available to larger businesses which helps the economy, and it makes more people into owners, which helps social stability. Everyone has a stake in the success of business then. Peasants, put down your pitchforks. The 401k/403b/457/IRA/etc. were the death knell to Karl Marx. LOL
To say that being a net debtor is preferable to accumulating capital…yikes…spoken like a true hopeless broke person. So broke so long he’s poor. Got the mindset. The little man can’t get ahead, so I might as well get that bass boat today and put it on payments because there’s not much joy in this life when you have a credit card with a balance like me. Woe is me.
Yuck! No thanks. I am happy to be free of credit card debt after 20 years of stupidity and slavery.
March 4th, 2008 at 10:01 am
You know I actually was told in economics class in high school that it is better to be a spender than a saver? In a conservative district, in a relatively conservative state. My teacher was a devotee of the trickle-down economic “theory,” too… wow. Er. Anyway.
There is nothing quite so depressing as being buried under a mountain of bills. It must have been Opposite Day when Jason wrote that comment.
As for Karl Marx… I think he had some valid points. But I see the logical conclusion of socialism expressed in the cooperative business, not in the Soviet Union’s command economy. (I think co-ops are a great idea, and I wish they had caught on better. Talk about an immediate stake in the business, in a way that Wal-Mart’s stock options employee benefit just can’t match.) And I think it is possible to have both socialism and profit. But I’m weird.