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ICFE eNEWS #16-34 - September 28th 2016

What Smart People Know About Credit Cards

By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors

Smart people know something about credit cards that the rest of us need to learn. The knowledge of this one fact results in smart people using their credit cards differently than the rest of us.

So, what is it that smart people know about credit cards that we need to learn? Simply stated: "When we use a credit card, we are not spending money, we are borrowing money."

Because credit cards are such a convenient way to buy things and because we use them so often, they seem like they are another type of "money." Most likely, this is why they are occasionally referred to as "plastic money."

To illustrate to high school kids that this is an illusion, I have often held up before the class a jar full of credit cards and asked, "If there are 300 credit cards in this jar, and each card has a $4000 credit limit (buying power), how much money is this jar of cards worth?"

Someone eventually will shout out the "right" answer: "$1,200,000." I then say, "And that would be the correct answer IF credit cards were money. Since they are not, this jar actually represents $1,200,000 of debt, not money!"

Intellectually, we may acknowledge that credit cards are not money, but practically using them so often to buy things makes it feel like we are spending "money" when we use them.

This is, no doubt, why one college student recently told me, "I'm glad I have a couple of credit cards, because even when I am flat broke, I always have money in my pocket!" And another client listed her credit cards as a "source of income."

Again, the simple but vital fact to know is this: "When we use a credit card, we are not spending money, we are borrowing money."

Now, let me illustrate this to you: Two women go to the mall to shop for some needed items. Neither of them carries cash, and neither of them carry a checkbook. The first woman uses a credit card to purchase her three items, but the second lady, who does not own a credit card, does something quite different. She drives to her bank before each purchase and secures a loan to pay for her items. Thus, she makes three trips to the bank and secures three different loans in order to pay for her three purchases.

At first glance it may seem like these two ladies used two different financial transactions to pay for their purchases, but not so! Both of them borrowed money, one with her credit card, the other with a bank note. Both created debt that must be repaid.

And that is the point! Each time we use a credit card, we secure a loan through a bank, and that loan must be repaid. We have pre-approval to borrow up to a certain amount of money with terms of repaying it by a certain time. We do not physically make a trip to the bank, but other than that, the transactions are virtually the same.

That is what smart people know about credit cards, and that is why smart people do not look at their cards as the ability to spend money. They see them as the ability to borrow money and create debt!

So, now that you know what smart people know, what will you do with that information? Will you whisper to yourself the next time you are ready to use your card, "I am about to borrow money and create a debt that I must repay."

By understanding this one fact about credit cards, we will automatically be much more cautious about when, where, and how much we use them.


Paul S Richard PhotoICFE eNEWS is available FREE upon request by visiting our Web site and filling out the contact form, and selecting "Yes" for "Add to Mailing List. Please pass this eNEWS on to your peers and interested others and invite them to subscribe for free. Also, visit the ICFE's new Web site: StudentDebtHelp.org

Sent by:

Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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