Set Yourself Free From Credit Cards

Let me tell you about my radio interview from hell.

At the start of each year I do about twenty back-to-back interviews on financial resolutions for the new year. It’s meat and potatoes sort of stuff that I’ve been doing for over a decade (and will be doing a decade from now).

Only this year, I snapped.

I felt like Michael Douglas in that movie Falling Down, where a mild mannered dude has bottled things up for too long and goes absolutely bonkers.

I was halfway through my spiel: ‘Aussies have some of the highest household debts in the world. The average credit card debt is $4,377, and if you only pay it off at the minimum -- which is all the banks encourage you to do -- it would take you…thirty one years to pay off, and cost you $14,900 in interest...The bubbly radio host interjected and said: “Oh sure, but I still couldn’t imagine my life without a credit card...I even hide my statements from my hubby!”

“That is just so incredibly...stupid” I blurted out.(

Awkward radio silence).

Bubbly radio host: “But….how do you afford nice things?”

Barefoot: “I have this weird thing called savings”.Bubbly radio host: “Oh I could never live like that”.

Now, the radio script I’d been given had me giving her tips on how to ‘manage’ her credit card.

Bugger that. It was time to go rogue.“You need plastic surgery. Cut the damned things up and be done with them” I told her.

That’s the only advice to take for anyone who has got credit card debt right now.

See, I’ve noticed that people who try and ‘manage’ their credit card debts, are nearly always broke. They may be able to pay it down at times, but it always shoots back up.

Why does this happen? Is it because they're weak-willed? Not really. It’s because they keep their card in their wallet.

That’s like a drunk keeping a beer in the fridge for hot days.

The truth is, if you have credit card debt you are not in control of your financial situation.

In fact, the truth is that you don’t need a credit card at all. I haven’t had one for most of my adult life.

When I was young and just starting out, I couldn’t afford one. My logical brain said: ‘credit cards make everything more expensive. I can barely afford anything now, so a credit card will make life impossible’.

Now I’m older I can afford one -- but I still won’t get one.

Why?

I see it as a reverse status symbol.

I’m showing people that I don’t need a credit card. Kids learn by observing what their parents do -- and my kids will grow up watching Dad pay his own way with cash. (Seriously, how’s that for the ultimate rewards program!?).

Here’s you: “Uh, dude, you’re missing out on rewards points. Pay it off each month, and you get free stuff!”

Here’s me: Bitch, please! Credit card rewards programs are a con job. The value of each point is manipulated by sophisticated marketers to keep you spending. They have a track record of devaluing points each year (a Qantas point is now reportedly worth about 0.6 cents), while simultaneously making it harder to claim rewards (Qantas actively limits the number of rewards seats on flights). And then there’s the annual fee.

In Case of Emergency...

A credit card isn’t about convenience, and it sure as hell isn’t about emergencies -- trust me if you’re in a genuine crisis, the last people you need to call on are these pricks.

Ask your granddad how he survived genuine financial hardships without a high interest rate loan from a bank in his pocket.

The truth is you need to have some ‘no matter what’s’ in your life.

No matter what, I’m not going to take out a high interest rate loan to fund crap I don’t need.

No matter what, I’m going to pay my own way, and claw back my financial confidence.

Know this: the moment you say ‘no matter what’ -- and really mean it -- you no longer have a debt problem. It’s simply just a matter of time.

Now, here’s how to acquire the ultimate anti-status symbol:

Step 1: Save up $2,000 Mojo in an online account.

Step 2: Do your sums and work out how many months it’ll take to clear your credit card in full.

Step 3: Double it. (Life happens).

Step 4: Apply for a balance transfer card, and when it arrives in the mail, destroy it.

(This is critical. A zero-balance transfer offer is the financial equivalent of selling gym memberships in January: ‘roll your lard over to our card, porky, and you’ll have be in great shape in 18-months time.’ A study by ME Bank last year found that 29 per cent of people who tried a zero-rate balance transfer deal didn’t clear their card before the end of the interest free period. Don’t be a financial fatty).

Step 5: Set up a direct debit each time you get paid, and get rid of it once and for all.

In all the years I’ve been doing this -- with thousands of people -- no one has ever come back to me and said: ‘you bastard, you made me pay off my credit card, and forced me to live on my savings’.

Tread Your Own Path!

I need your help

This week marks our two year anniversary of losing our home -- and everything in it -- from a bushfire.

I made a pact with myself that each anniversary I’d remind you to take a look at your insurance. However, as insurance is possibly the most boring topic in the world, I’ll keep this ridiculously brief:

I need you to dig out your insurance statement this evening (please put a reminder in your phone, now). Make sure you are insured for “Total Replacement”. This is where the insurer agrees to pay the cost of replacing your building to the standard it was in before it was damaged or destroyed.

Most people have ‘sum insured’ policies, which cover you for a specific predetermined amount in the event of a claim. It’s easy to get screwed with this deal. You don't want this cover. Stick with a “total replacement” policy.

Happy Anniversary.