Just One Thing: Atkins for Plastic

Take out all your credit cards. Even the ones you don’t use but once a year. How many do you have? Oh, you want Aunt Toby to show hers first?

I’ve got…12. That is just moi. We are NOT an average American family, which in 2004 had 8.

Frontline Credit Show

This show gives a great overview of how Americans came to live on a diet of plastic (did you know that South Dakota, the price of shipping corn, and banks on Long Island are the magic combination?).

But that show was in 2004 (thought there are updates on the site). For more current statistics on credit card related stuff, go to:
Cardtrak statistics

So, what do these bits of information have to do with our friend at the top and ‘just one thing’?

Aunt Toby wants you to, as usual, take out paper and pencil and think about how you pay for the stuff and services you buy. If you save receipts, then it becomes easier still; the evidence is right there at the bottom. How many dollars a month do you spend – and how many of those dollars go straight to your credit card balance?

The reason I ask this is the issue of minimum payments. A lot of us end up making the minimum payment because we just don’t feel we’ve got enough money to pay more. This is a big mistake. If you want to know what the real cost of making minimum payments on credit card balances is, go here:

What things cost if you only pay the minimum on the balance

Input your credit card balance, the percentage interest and the minimum payment (as expressed in a percentage – I used 2.5% in this example). The answer box shows just how long it takes to pay off the balance if you pay the minimum. In 2004, 25% of all credit card holders did that – with the average amount of credit card debt per family of $8000.

At 18% interest, it takes 360 months to pay off an $8000 balance at the minimum. 360 months is 30 years – on $8000, that is $11,615.32 IN INTEREST!!! That is just on the balance at that point in time – and we all know that we just keep adding to that balance as we go. We’re all paying huge amounts of interest.

If you looked for a loan, you’d never sign up for an 18% loan. Home mortgages today are in single digit interest rates. Why would you sign up for a loan at 18% – that is what you are doing when you buy stuff on credit and do not pay it off that month.

Or, look at this on the investment side: What is the best rate you can get for a savings account – a dividend-bearing stock or an interest-bearing municipal bond? 4%? 5%? So why give banks and credit card companies 18% income?

To get the EFFECT of getting 18% income — use cash for everything or if you are going to use credit cards, pay the bill 100% off at the end of the month. You got the float between when you bought and when you paid to make money in your savings account AND you got rid of the debt before the 18% interest charge kicked in.

But, you say, Aunt Toby..it’s sooooo hard….I loves the plastic! Well, sweetie, the answer is to start with just one thing, especially one that is consumed, like gas or groceries. How much are you spending on that one thing? Be a little bit parsimonious with yourself and save up that money – jar, envelop, coffe can out in the garden, it makes no difference as long as you’ve got that little hoard of cash to start with. Then use cash, a check or a debit card (and write it into the book and balance on an ongoing basis). Do that for a month. Hey – you did not use the plastic for a month for that one thing!!! Hurrah for you!! Then, add the second one – let’s try groceries this time — get into the practice of NOT using plastic every single time. At the same time, make chunks of payments on that balance and get rid of it. Do the Grover Norquist thing and make it small enough to drown it in a bathtub.

And then, step away from the plastic, …and no one will get hurt.