There is a remarkable difference between two people when you speak to one who is burdened by debt and one who is debt-free. I have had many conversations on both sides of that equation and my experience says the difference is enormous. The obvious conclusion to me is that the cost of debt goes far, far beyond just the dollars and cents that have to be repaid. One fact alone proves that, money is the greatest source of marital dispute.
In this country, credit card debt rules. While all eyes are focused on the government’s national debt of more than $19 trillion dollars (and our attention should be on that enormous burden for future generations), people look past the fact that credit card debt is fast approaching the heights of 2008, just before the recession.
As of 2017, 38.1% of all households carry some credit card debt. Households with the lowest net worth (a net worth that is zero or negative) hold an average of $10,308 in credit card debt! The total outstanding U.S. consumer debt is $3.9 trillion. The total revolving debt is over one trillion dollars. For more details see Americans in Debt.
For many people, especially for the households with the least net worth, credit cards represent their safety net or emergency fund. But that is similar to having no safety net at all, or perhaps more accurately, having a safety net that is as dangerous as having no safety net at all. For those people, the safety net becomes a trap and their financial life and future is slowly and stressfully wiped out. Proverbs 22:7 teaches us hat:
7 The rich rule over the poor,
and the borrower is slave to the lender.
Should credit cards be used?
A credit card is a tool and like any other tool can be well-used or abused. The answer to the question depends on many factors and details that are very personal. Dave Ramsey, who teaches Financial Peace University, takes the simplest view. For him, the answer is a resounding “no.”
For others, though, the answer is one of practicality. I am one of those. I have a credit card that is regularly used. It is also always paid – always! – before the due date. For those in a financial situation to be certain that the bill is ALWAYS paid on time, credit cards are merely practical.
But Dave Ramsey makes several points as he argues against credit cards, points that have merit. People who use credit cards often make unnecessary and self-indulgent purchases. I am guilty of that. Credit cards make impulse buying easy, whereas the envelope system and a tight budget makes impulse buying more difficult and far less likely. Not handling cash makes purchases easier, especially sizeable, budget-damaging purchases. Handling large numbers of bills makes the purchase feel a lot more significant and makes the money going out a lot more “real.” If you think that isn’t true of you, the credit card companies thank you for naivety. Citibank estimates that people with a credit card will buy 26% more than if they were paying cash.
Those who use credit cards as their safety net often discover that the ultra-high interest rates of credit card debt are financially unsafe and very unforgiving. A $500 house repair can quickly grow into a lingering $750 overall cost. A 20% interest rate causes debt to mount up quickly, and many credit cards have higher interest rates than that. The siren’s call to just make the minimum payment is the credit card companies’ call to generate profits as your budget bottoms out every month. If you have a $2,000 balance and an interest rate of 19.5 percent, you may be told you can pay only $75. What the credit card company isn’t telling you is that $32.50 of that $75 is pure interest, and only little more than half pays down principle.
In other words, before you buy, do the math. Be absolutely certain you can pay every month, in other words, be certain you have plenty of margin in your budget and that you have a very large emergency fund.
So, if you do plan on keeping a credit card, follow these rules:
- Before making a credit card purchase, wait a few days.
- During those days, pray about that purchase.
- Use your credit card only for budgeted purchases.
- Pay your balance in full every month without fail.
God’s Word has a lot of wisdom about the handling of your money and possessions. In all, God gave us over 2,300 verses of instruction and guidance. One solid bit of advice is Proverbs 22:3.
3 The prudent see danger and take refuge,
but the simple keep going and pay the penalty.
The choice is yours.
About the Author
John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.