Saturday, July 21, 2012

I love credit cards (just not the companies who issue them)

I love credit cards – I get to borrow money from the credit card companies at 0% for a month, I’m set up with a convenient way to track my spending online, and for two years I have been establishing a credit score that will enable me to pay a lower mortgage rate if I buy a home, or have an easier time being approved as a tenant.  I pay my balance in full every month, so pay no interest, have no yearly fees, and stick to cash-back rewards, which so far have totaled several hundred dollars.  My experience with credit cards has been entirely positive (picture a montage of me running through the grass and twirling around with my credit cards in the air).

Still, I never forget that credit card companies are businesses – they not only have a terrifying amount of information about my spending habits, but are also trying to suck as much money out of me while maintaining the relationship so they can continue to drain me for as long as possible, much like a parasitic partner.  I instead keep the relationship casual, hit it and quit it, and don’t let things get complicated, or allow the companies to have leverage on me.  (Just to be clear, despite my terrible relationship analogies, I don’t actually hate all relationships or my boyfriend.)

I’m sure you’ve all read an article or story describing just how crazy expensive paying interest can be.  Take a 30-year fixed mortgage on a 200K house – paying 6.5% vs 9.5% in interest translates to 255K vs 405K paid in interest over the next 30 years.  Yes, this is crazy, and you should absolutely put 20+% down, and pay down the principal faster or consider a 15-year mortgage if buying a house (and have a good credit score so you can get the lower mortgage rate).  So of course the reason credit card companies (aka shifty mother-f*ckers) are happy to lend you money, is because they’re raking in the dough due to your interest payment on the balance you carry month-to-month.

Even assuming a really conservative 10% interest rate on a credit card, paying off your balance in full vs not doing so is effectively a guaranteed 10% return.  Do you hear me?  If this is not shocking, please tell me where you are getting such guaranteed returns elsewhere (and I will show you a Ponzi scheme).  This is so clear, yet there are so many people letting credit card companies get the best of them.  We humans are so infuriating but also so fascinating. Logic dictates that if you have balances on say, 3 credit cards, you reduce debt more effectively by paying off the one with highest interest first.  Yet Dave Ramsey’s famous for his Snowball method – pay off the one with the lowest balance first instead, and you’ll more quickly get the boost of satisfaction from kicking your debt in the gonads, and it will be easier to move on to your next-highest balance card, with the goal of eliminating all debt.

I spent a typical Saturday morning eating salami, reading about celebrities, and trying to understand how Chase’s BluePrint program works.  NBD – the tennis courts are wet, else I might have been doing something more active (maybe).  Anyway, instead of rewards like points or perks, certain cards of theirs have lower interest and allow you to target specific types of transactions to pay off in full, while continuing to pay the minimum balance/some amount on the rest, and continuing to pay out interest to Chase.  According to the commercials I’ve seen, this is AWESOME, because people can now make a PLAN, which is IMPORTANT when you’re having TRIPLETS.  I feel like this is actually a complete hoax, designed to make people feel good about selectively paying down purchases, which continuing to pay lots and lots of interest.  Well played, Chase, well played.  You’ve convinced people that you’re helping them out, and in return they’ll continue to pay interest.  Who knows – maybe they’ll actually carry larger balances and pay more interest than before, bolstered by their satisfaction at paying off that one big item.

Bottom line – if you’re paying interest, the credit card companies are winning.  And don’t you want to be a winner?  Anyone else feel that Chase’s BluePrint program is hella sketchy?  Do you make credit cards work for you, or do you resist the lure of plastic?

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