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Unlike before when the devil comes to you whispering in dark halls and eerie nights, today’s devil comes with an application form and beautiful sexy sales reps. It doesn’t have the traditional horns and spiked tail but it does have a smooth finish, a new age look and is 3-1/2 inches long by 2 inches wide. You don’t even have to rub it to get the dark genie out ready to grant you your three wishes in exchange for your soul. All you have to do is SWIPE it.
Swipe the Tears Away!
Yup, for some (and this is a growing number), swiping the plastic has indeed become the new opiate or elixir, a temporary way out of the regular hustle and bustle of life, a small taste of luxury, and perhaps a good exercise guaranteed to drive away those negative thoughts brought about by boredom, quarrels with a loved one or financial pressure.
You don’t have to asses, to consider or even to think before pulling out the plastic. In fact, most of the people behind this innovation will even go to extraordinary lengths to discourage you from doing it. The only question they want you to answer is: DO YOU WANT IT? If yes, then proceed to the cashier. If you’re having second thoughts, then perhaps the 0% INTEREST, LIMITED STOCKS ONLY, LIMITED SALE, 50% DISCOUNT OR FREE GADGETS will help you forget the objections cropping up from somewhere in the back of your sane mind.
Yup, impulse shopping has never been easier and consumerism never more profitable. However, it is not the presence of this little devil in our wallets that’s bad, its how our mind evolves or adapts to this magic card that’s dangerous.
Wants over Needs
Plastic has blurred the lines between wants and needs until both are almost indistinguishable from each other. Consider… the definition of basic needs encompasses a person’s need for food, clothing and shelter. The post industrial or information age has given us some additional ones like education, insurance, utilities, etc. Of course, even our basic needs are subject to moderation. Food may be needed but caviar, fillet mignon and restaurant food is not. Likewise for the other needs.
Needs are defined as such because we cannot survive or live well without having them, and because of this, financial stability is its cornerstone. This means that although we can spend some of our money on entertainment and wants, we should always keep the big picture in mind – enough money to raise a family in the future, enough savings to cover emergencies, enough money to build a house or enough savings to live on comfortably without working in the event of medical emergencies, etc.
Needs (like a house) however are more often than not big investments, one that needs a lot of preparation, planning and sacrifices. Wants on the other hand are oftentimes small or medium sized expenses like buying a large screen TV, a car, new set of clothes, eating out, going on a vacation to Boracay, etc. Because of their ease of acquisition and ability to provide instant gratification, wants oftentimes overcome our needs. Impulse wins over caution and what feels good becomes confused with what is financially right.
EQ Deficiency Syndrome
Plastic tempts us to focus in the now and because of its easy instalment plans, it gives us the power as well as the means to give in to our weaknesses and desires almost immediately. It discourages growth and maturity that comes from saving, financial planning and deferred gratification. Because of this, a growing number of plastic infected people are finding their will to resist these financially debilitating temptations getting weaker and weaker. After all, a little shopping every now and then wouldn’t hurt right? Yup, but how much do these shopping expeditions total in a year’s time and what long term plans have you sacrificed for these small trips?
Abstract Electronic Money
With Plastic, it becomes a lot easier to think of money as an abstract thing. The fact that we don’t see it makes it easier for us to believe that things are easier to acquire than usual. After all, isn’t it much easier to buy an Iphone using a credit card wherein you don’t see any money changing hands than having to withdraw a thick roll of bills and having to hand it over to the cashier?
The sad fact is, electronic money is just as hard to come by and is just as valuable as real money. You may not see it, but you’ll have to work just as hard to earn it in the long run. Everything adds up somewhere down to the last cent. So you may indeed spend more than you earn, but you definitely cannot earn more than you work.
No, you don’t get to read about these dangers of using plastic in the fine print you sign, you dont see any government warnings on the cover or need any psychiatric score to be eligible for it . All they need before getting you to sign the contract is an assurance that you wont check out before cashing in. As with any other contract with the devil, you have to read between the lines and bite beneath the sugar coated glaze to fully understand what you have gotten yourself into.
The Devil’s Contract
At the surface, the use of plastic may seem like a simple, safe and easy way of doing monetary transactions. Scratch the surface and you will see that the target of this card is not so much as to give you a safer and easier way of spending, but to capture something more valuable, your mind.
Like the TV ads of cosmetic products that have moulded our perceptions regarding beauty, plastic ultimately aims to control our perceptions regarding money - how we spend it, where we spend it and how much we spend of it. Hence, the American dream, the Model Yuppie, and the image/comfort conscious culture that permeates our society. Everywhere you look, you see ads about happy people walking around with shopping bags, grinning yuppies with sporty looking cars and sleek cellphones, and blissful women decked out in signature clothes and branded footwear.
Plastic sells not a different mode of doing monetary transactions but a different way of thinking, one that involves getting what we want before even earning the right to have it, one that is focused on emotions, insecurities and weaknesses instead of logic and one that sacrifices long term stability to short term superficial gratification.
Here’s the Real Contract;
Instant Gratification to Long Term Slavery
Plastic gives you the power to satisfy your every want for a price: months or even years of work in the future. Buy now, pay later. What this means is that because you gave in to your impulse, you lose a bit of freedom in directing your financial path - at least in the short to medium term future. Your salary for this month will go to paying for your indulgences during the past year and not as savings for your plans for the next year.
Short Term Wants VS. Long Term Goals
A big screen TV, a microwave, a new cellphone and other non essential things take the place of long term savings, money to build a house, send the kids to school, help your family, be financially stable, etc. The more we use the plastic, the harder it becomes for us to keep our eyes on the goals that really matter and the things that will help make our lives a LOT easier in the future. In the end, plastic replaces financial freedom with financial slavery.
Get Less for More
Interest charges and hidden fees make us pay more for things that could’ve cost less. What’s the difference of buying a Cybershot camera now using your plastic and buying it a year from now using cash? The answer is price and time. You pay more for the gratification of being able to use it right away. That's the power of money working against you!
Don’t be fooled by the 0% interest gimmicks you see in most stores too. Yes, you indeed pay 0% interest to the store you bought the product from, but you will still have to pay your credit card company its 3% monthly interest. It’s confusing yes, but that’s the name of the game.
Miss some payments and you just might find yourself paying more than double the price of your purchases because then the interest rates skyrockets from 3% to more than 20% - some people even spend most of their lives paying the interest without touching the capital - A hefty price indeed to pay for instant gratification.
We may call ourselves civilized and urbane, laugh or deride those people committing suicide bombings over in Iraq, but isn’t plastic-swiping induced financial suicide much the same thing as suicide bombing using C4 plastic? At least they get their 40 virgins, we on the other hand, end up with 40 credit collectors, he he. This brings me to my next topic.
The Hidden Strings of Plastic
Plastic in itself is not bad, as with any other tool, it is how we use it that determines our fate. As with any other weapon, the best way to make sure that you don’t blow your brains out or unintentionally slice off your appendages is to get to know it better. In this case, maybe it’s best to start with how financial companies profit from your use of the plastic.
Merchant Fee: Merchant fee is what the retailers pay for every customer purchase done through a certain credit card. Usually, the more people there are using a certain card the higher the merchant fees the retailer has to pay. This is because it wouldn’t have been possible for a sale to take place without that credit card in between.
Annual fee: Annual fee is what we pay for the right to hold on to our credit cards on a yearly basis. This could range from P1,000 to P2,000. That means that even without using the credit card, we still have to shell out some money. Think of it as some sort of an insurance premium.
Monthly Interest: Monthly interest is what we pay the credit card companies for loaning us the money to buy the things that we want. In our country, this could range from 2.5% to 3.5%+ per month. Of course, should you miss out on some payment dates, this could jack up to 20% or more on a monthly basis. Keep up the non-payments and pretty soon you may find the interest amount dwarfing your original debt. This is because, the higher your credit risk is, the higher the interest rates you will have to pay.
Late Fee: On top of the increased interest rates, we will still have to pay late fees should we miss out our payment dates.
Overlimit Fee: Go above your credit limit and the banks will fine you a corresponding amount. Of course, seeing that your credit limit is usually far greater than your monthly salary (thus low low chances of paying off your loan in less than a month), the banks will also be looking forward to charging you with their monthly interest.
Cash Advance Fee: Should you use your credit card to withdraw money from ATMs instead of outright purchases, you will be charged the cash advanced fee which will be included on top of your monthly interest payments.
The annual and hidden fees alone are enough to warn you about the dangers of using your plastic irresponsibly. Add to this the interests rates that are proportional to your credit risk and you will see the full extent of the potential financial quicksand you could find yourself into.
In this sense, do you think it would be in the credit card company's interest if you pay on time? What about if you spend less and save more? However big your income stream may be, unless you can leverage your credit card spending, this plastic will act much like a financial leech sucking away your financial strength.
Free Money
A news article just recently featured a story about a glitch on a Big store's credit card application program which accidentally approved high credit limits to all applicants. As the plastic rolled out, people were dancing in the streets and splurging like there's no tomorrow - all the while shouting FREE MONEY!
Free money? What happens when the credit card bills roll in? Unless these people file for bankruptcy, there's no way on this earth that they can avoid paying up eventually. Free money is much like garbage magically disappearing in a puff of smoke.
The Credit Death Row
Should you find yourself out of luck and out of money to pay off your credit card debts, the worse thing you can probably do is to run away and pretend that everything’s ok. Why? Because the banks have already perfected the art of collecting money from debtors who run away while you haven’t yet perfected the art of hiding. Short of getting a new name, acquiring a fake visa and passport, forgetting your family and everyone close to you and having a plastic surgery, there is no way that you can run away from the banks. Add this to the fact that the interest rates they use increases the more you hide and you will just find yourself in deeper shit than if you confronted them in the first place.
So… what to do?
The very first thing you should do if to do damage control, take charge of the situation and salvage whatever you can from the mess. Nothing’s going to change the fact that you’re in the shit pit anyway so better start crawling towards the light one small inch at a time.
Lifestyle Change
Einstein once said that you cannot solve a problem using the same level of thinking that got you into it in the first place. What this means in financial terms is to take control of your finances and minimize the spending that got you into this debt. If you’re accustomed to spending more than you’ve earned, then no amount of financial help is going to have much effect unless you strike at the root of the problem – learn how to spend less (considerably less) than what you earn and find ways to earn more.
Take a jeepney instead of a taxi to work, move to a smaller place, sell some of your things, work for that promotion, etc. (read more from the blog: down the golden brick road). By doing this, you can set aside an amount of money that you can use to pay off your debts or open new earning opportunities. Moreover, this would also enable you to gain some credibility when you say that you can pay off your debts – thus you become less of a credit risk and you can negotiate for better terms.
Take Out Smaller Interest Loans
Credit cards charge some of the highest loans you see in the market 3%-20+% monthly. What this means is that by taking out loans from other institutions and using it to pay off your credit card debts, you can save a lot of money from the lower interest rates. This means that you can concentrate on paying off the principal and ending the cycle of debt faster than if most of your money goes into paying the interest charges.
Here are some sources of loans that charges lower interest rates:
1. Salary Loans
2. Personal Loans – from family, friends, etc.
3. Government Loans (SSS. GSIS. Etc)
Note: Don’t take out a loan from those charging a higher rate of interest than your credit card company. An example of this is taking out a loan from a loan shark [5-6] (20% monthly interest) to pay off your credit card debts. Otherwise, you’ll find yourself in deeper trouble.
Negotiate with your Loan Officer
Talk to your loan officer as hiding from him may result in your debts being transferred to a debt collection agency wherein your will be charged with higher interest rates and have less room for negotiation.
Make a systematic plan on how you will pay off your debts with accurate estimates on how much you will be able to pay monthly, bring proofs that you will be able to do what you say so that you can negotiate for longer repayment terms as well as a lower interest rate. Banks have to recognize the fact that it is better to recoup all their losses than to force you into bankruptcy and running wherein they will have to spend extra in filing charges and hunting you down. As long as you sincerely show that you are willing to pay off your debts and that you have the means to do so, you will always be able to negotiate for better terms.
Finally, Stick to Your Promises
Make sure that you will be able to do exactly what you have promised and that you will always be able to pay on time. This improves your credit rating as well as lets you avoid the higher interest rates you will incur should you miss out on a payment.
Using Plastic Responsibly
An ounce of prevention is worth a pound of cure.
Perhaps the best way to avoid the pitfalls in credit card use is to learn how to use it responsibly. Use it not as a short term solution for boredom, insecurities, instant gratification or discomfort but as a tool for taking advantage of new opportunities, enhancing safety or as some sort of insurance against emergencies.
Of course, one cannot always avoid using credit cards for small transactions like purchasing groceries or eating out; remember though to always keep the amount you spend to something that you can easily pay for in less than a month. This will minimize the hidden fees and interest charges.
By using your credit card responsibly and by paying your credit card bills on time every time, you also improve your credit score and this adds to your credibility when taking out large loans that you can use to build your house, send the kids to school, etc. in the future. As always, better credit rating means lower interest rates and bigger loans.
You can also use your credit card as a standby source of money in case of emergencies. This way, you can always be sure that you’ll have money when you need it.
Last but not the least; you can use your credit card in financing income generating opportunities which will be able to generate a higher rate of return than the 3% interest rate that you will have to pay. A simple example is taking out a 3% credit card cash advance loan to finance a small business that will be able to give you a 10% rate of return. You pay off the 3% and keep the remaining 7% as profit.
In the end, it all boils down to the numbers. Will you use the rope this plastic gives you to climb out of your financial hole and into a better place? Or will you use it to hang yourself?
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