Today is the day to cut up your credit cards

By: Don McNay
By: Don McNay

CNBC superstar Maria Bartiromo, Fox Business News host Dave Ramsey and myself have one thing in common. None of us have credit cards.

Let Freedom ring
Let the white dove sing
Let the whole world know that today
Is a Day of reckoning
-Gretchen Peters

CNBC superstar Maria Bartiromo, Fox Business News host Dave Ramsey and myself have one thing in common. None of us have credit cards.

When three people who know about money go to the extreme of not owning any credit cards, others might want to take note.

Credit cards play the ultimate sucker game with consumers. They know everything about you. No matter how strong you are they are going to keep trying to tempt you.

100% of people with credit cards tell me that they “pay off the balance” of their credit cards” each month.

Since the Federal Reserve Study of Consumer Finances says that 60.3% of credit card holders have a card balance, it means that many people are living in fantasy land.

Credit card companies know how you spend, where you spend and what you spend it on. They know what times of the year you are looking for extra cash and situations where you might blow through your budget.

You give them that information every time you use your card.

Since Maria, Dave and I don’t have cards, we make that information about us tougher to find.

Joe Nocera’s 1990 book, A Piece of The Action is one of the greatest business books ever written. It is the history of personal finance and credit cards.

Nocera wrote about Andrew Kahr, who got Household Finance in the credit card business and was the founder of First Deposit Corporation (which became better known as Providian. )

Kahr had a knack for using mathematics and marketing techniques to find people who would never pay off 100% of their credit card balance.

His companies made a fortune, like all credit cards companies do.

It never ceases to amaze me how many people think they are “smarter than the credit card game.” It reminds me of people who are trying to outfox casinos.

Christina Binkley’s book about casino companies, Winner Takes All, talked about how casinos like Harrah’s, used their “rewards card” system to track the gambling habits of their customers.

If a casino can track your spending habits, imagine what a credit card company can do.

Las Vegas was built on a lot of people who thought they were smarter than the odds makers. I see the same mentality with credit card users.

I have the same conversation often. People defend their credit card use and say they “pay off the balance” or “make a killing in rewards points.”

I’ve had the exact same conversation with people who tell me how they are beating the casinos by getting complimentary food, drinks and rooms.

I’ve never seen a profitable business give away more than they take in. Casinos and credit cards companies are two of the most profitable businesses around.

People tell me they are paying off their credit cards every month. I suspect they sincerely believe it.

The hard data says otherwise. SOMEONE is part of the 60% of Americans who currently has a balance.

People need to go back through the last couple years of statements and verify that it is true. Usually when I have people do that, they find an occasion or two where they “slipped up.”

Sometimes that “slip up” lasts for years or decades

Many of the people who believe that they are paying off their credit cards also have car payments, furniture loans and second mortgages on their homes.

I don’t have those and I doubt Dave and Maria have them either. Most debt is bad debt but credit cards are the most insidious of all.

I suspect the anonymous nature of obtaining credit with far away banks helps contribute to a lack of accountability.

I’ve always done my banking with small town bankers who I personally know. I had to look them in the eye and tell them what I was spending the money on.

It was often an uncomfortable but valuable experience. Sometimes bankers would talk me out the loan or tell me I couldn’t afford it.

An officer in a consumer loan company once told me that they focused on small towns and rural areas.

People in small towns would do what it took to pay their loans as they did not want to lose face with their neighbors.

You don’t lose face if your “bank” is the South Dakota branch of a New York bank and the collectors are located in India. It makes it easier to take on more debt than you can handle.

Small town bankers taught me the skill of money management and discipline. None of them tried to tempt me with “cash back” offers. None of them tried to hit me for 24% or 36% in interest either.

Most credit cards come from “too big to fail” banks. The same ones that we, the taxpayers, bailed out. If you look at the list of the top credit card issuers and look at who got bailout money, they are usually the same names.

You may not see the bankers in person but they know a lot of about you . Or they think they know a lot about you. The banking collapse and bailouts proved that the bank’s didn’t know us as well as they thought they did.

They only know how to sell us on their products. They do that extremely well.

Knowing a customer and knowing what touches his or her hot button are two separate issues.

The only way to keep the companies from acting like Big Brother is not to give them the information to start with.

That was a conclusion that Maria Bartiromo, Dave Ramsey and I came to some time ago.

Today is the day to cut up the cards. Today is the day to stop letting “too big to fail” banks hit you for outrageous interest and fees. Today is the day that you stop the card companies from tracking your spending and what restaurants you eat at.

Today is the day when you proclaim your freedom from credit card overlords.

Let me know when you do.

Don McNay, CLU, ChFC, MSFS, CSSC is one of the world's leading authorities in helping injured people and lottery winners deal with complex financial issues.

McNay is also an award winning syndicated financial columnist.

McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983. The company's primary office is in Richmond, Kentucky.

McNay has Master's Degrees from Vanderbilt and the American College and is in the Eastern Kentucky University Hall of Distinguished Alumni.

McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You When The Lottery

You can write to Don at don@donmcnay.com or read his column at www.donmcnay.com.

You can reach him on Facebook at www.facebook.com/donmcnay and on Twitter at twitter.com/Donmcnay

McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.
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