Last year, I posted about the high interest rates for Walmart credit cards and the way cashiers pester shoppers to open a Walmart credit card, every time they check out. This weekend, as I was saying “No” to a Walmart credit card for the hundredth time, I noticed a quota board behind the head cashier. It appears each cashier in the San Clemente store “Must Have 15 C/Cards Daily!”
Revolving Debtors are the Target
There is an ongoing debate of whether credit card companies are preying on consumers or people in debt are just irresponsible. It’s my opinion both are true. Companies are directly targeting their customers with credit offers, to help sell more merchandise and bring interest revenue to the bottom line. They are definitely aware that a large percentage of the population is indebted and financially vulnerable. In fact, these are the customers they are targeting. Let’s face it; customers who avoid impulse purchases and pay off their credit balance each month aren’t nearly as profitable. Nor are they as likely to sign up for a new card, since they probably have other credit cards with a zero balance.
Are you a victim or a contributor to debt accumulation?
How Badly do you Want It?
The $1,000 question is: do you need that $799 flat screen enough to pay 22.9% interest? If so, you may be the kind of customer Walmart is looking for. By the way, I’m not just picking on Walmart. There are plenty of other retailers engaged in the same lucrative practice. And, there seems to be no shortage of customers willing to pay steep interest rates to avoid waiting.
This example comes from someone I know and love. Two weeks ago, he complained about being in debt and the interest rates on his credit cards. Then, he mentioned how I really needed to upgrade my TV. And, he recommended the exact Samsung model he had just bought for $799 at Walmart. It was a great deal. Of course, that didn’t include his new entertainment furniture, Blu Ray player and cable service upgrade.
How much extra are you willing to pay to have it now?
How Much are you Willing to Give?
I’m in the middle of reading the classic personal finance book Your Money or Your Life. The primary theme of the book is that everyone should consider how much each purchase costs in life energy. In other words, how much of your precious time and energy do you have to give up to pay for an item? Was it a fair exchange? Or, did you pay too much? Money comes and goes in our lives, but time is a precious commodity. Once you have squandered your time and life energy, you can never get it back.
Would you work 100 hours for a new TV, if you couldn’t use credit?
Is it Worth the Risk and Stress?
In my opinion, the biggest downside to being in debt is the dramatic increase in financial risk. Every small payment becomes a huge liability, if your income drops. And, the higher your debt-to-income ratio, the higher your chances of becoming bankrupt or homeless. Easy credit can become a hard liability. Millions of people figured this out during the mortgage crisis after they lost their homes. Millions of others have lost their jobs and are struggling to pay their debts. The risk and stress are rarely worth the purchases.
How much risk are you willing to take in your financial life?
The Moral of the Story
This is usually the section where I toss in some nuggets of wisdom and highlight the moral of the story. But, there is no right or wrong answer here, only an important decision. Do you pay more for having something now? Or, do you wait until later and pay less for the same or better item? Do you pay down debt and contribute to savings? Or, do you upgrade to the hottest new gadget or drive the latest model car?
I have been plenty foolish with credit and I have paid for it dearly. I warn anyone who will listen to avoid getting into debt. Most people have to make their own mistakes, before they realize what a slippery slope credit is. Like any tool, credit can be useful. But, you can also smash your thumb or lose an eye, if you aren’t careful.
The Bottom Line
The bottom line is that credit is the siren’s song of a desperate retailer. And it’s beautiful music to the ears of a debtor. The surest way to keep your ship afloat and safely off the rocks, is to avoid the enchanting lure of credit.
“I had plastic surgery last week. I cut up my credit cards.”
Henny Youngman – King of the One Liners