I love to shop, I won’t lie. I do write a shoe blog after all so shopping is one of those things that is at the top of my list of fun things to relieve stress. I was at the mall yesterday (I am a bit of a mall snob but its a cool place to walk & buy makeup). Ok, more about buying makeup and the walk was from the car but lets not get off topic.
I was in a store & there was a woman making a purchase and somehow we got on the topic of credit cards. Really you would think that retail therapy means retail debt right? So many Americans are in debt and the interest rates on credit cards is insane but when you go shopping, credit cards get slapped onto the counters like the winning hand at a high stakes poker game. Then comes what sounds like the golden goose of shopping enthusiast everywhere, would you like to save blah blah amounts of dollars on your purchase today by applying for the blah blah card. It comes with bonus points for free things to reward you for using it when you shop.
STOP! Let’s look at this a little closer. I know many people who use credit responsibly & they use the cash back to travel and so on. Those people who really know how to work the system are rare in my opinion. Today you will save lets say 10% on your purchase for applying and lets say your purchase is $100. So you get to save a whopping $10 off for them to tap into your credit score and here tax is 6% so really you only saved $4, I would charge more than $4 for the time it takes to fill the application out. When I say this out loud to people I have been told that this doesn’t cause it to drop by much. So today you went to the mall, to Target and who knows where else & they all offered you this deal, enough of these will hurt you. But lets just say for gee whiz kicks & thrills that you are at a 640 and you have been thinking about buying a home. You go to the mall & this little application won’t hurt me is your thought, fall below that 640 and see if you can get a house without having to jump through a few flaming hoops. I’m just saying, those deals aren’t always deals.
Now lets say that you have a decent score & you’re not worried about a few inquiries. Let’s now look at your purchase a different way. You bought your $100 purchase on credit which took your balance on this card up to $1000, the more you use your credit the more it affects you, if your balance is $2000 you are at a 50% ratio, this is bad and can hurt you. If your limit is $1000 well you’re done shopping & lets just say the interest rate is 4.28% with a minimum payment of $20, it will take you 56 months (that’s over 4 years) to pay this off and when you finally get it paid off it will have cost you $1120 and the hassle of having an extra bill each month. By the way, if just giving away that $120 doesn’t bother you,at the time of this writing shares of Apple are $97.67 so that money that just went away into thin air so you could take 4 years to pay off that pair of jeans could have helped your retirement fund . Oh! I guess this post is titled Overheard At The Mall isn’t it? I guess I should tell you what started this rant, I was talking to a woman while my daughter was in the fitting room & we got started talking about credit cards, the conversation started with us both expressing just how ridiculous our closets were. When she got ready to check out, the young woman gave her the apply spiel, she said “Oh honey, if I can’t pay for it with cash, I don’t need it”. Honestly, I thought I was the only one with a shopping habit that felt this way. It was so refreshing to hear, that we both started talking about much of what I mentioned above. I think there are only 2 things that should ever be purchased on credit, cars & houses and only if you must. Credit should be used responsibly and I think its something that is for emergencies. It took me a while to learn this and to become debt free. Can I just tell you that when you learn how to eliminate debt that is wasteful, it is an extremely liberating thing. Looking for stress relief, lighten your load of credit card debt & you will breath freer than you ever imagined. By the way, most Americans don’t qualify for an interest rate of 4.28% most are in the 11% an up category. Calculate that.