Why Americans shouldn't use Credit Cards

Why the Majority of Americans Should Not Use Credit Cards

David Butler

University Of Phoenix



















The majority of Americans should not use credit cards; the industry was designed with the intent for consumers to become in debt. The credit card system allows consumers to establish credit if they make all of their payments on time, and they can bypass all of the interest if they pay the balance in full every month, but history has shown that the majority of Americans fall prey to the credit card system because of overspending, deceitful practices from credit card companies, and a credit card system that is addictive and influences bad financial decisions. The majority of Americans would fare better finding alternative ways to purchase products that don’t involve creating more debt for themselves.

         

“Keeping up with the Joneses” This is a common idiom used in American society that expresses the desire of the average person to keep up with the lifestyle that their neighbor so gracefully displays. The desire that one has to fit in with the social status of their neighbors accompanied with the tendency to purchase more when using credit cards is a determinate factor of why consumers find themselves overspending and eventually in debt. Some consumers will argue that paying with credit cards is a fast, easy, and convenient way to purchase their items but the question they have to ask is do they want the spending of their money to be fast, easy, and convenient? The very attributes of using a credit card are also its weaknesses. A study done by Drazen Prelec and Duncan Simester titled Always Leave Home Without It: A further Investigation Of The Credit Card Effect On Willingness To Pay, they conducted a study with several MBA students and gave half of them the option to use cash and the other half the option to use credit to bid on three different prizes. The results showed that on average those given the option to pay with credit wrote down twice as much for all three prizes. According to Drazen Prelec (2001) “Credit cards are insidious because they disconnect the consumption transaction, which is pleasant from the payment transaction which is painful.” The majority of Americans find themselves overspending at the cash register and also find themselves in debt with credit cards because of the false sense of security that they have gained from a small square piece of plastic. 



“A Journal of Gambling Studies touches on some of the points in the arena of online gambling. Researchers analyzed 27 million online poker hands and found an interesting result: the more hands a player wins, the less money they’re likely to collect. Cornell University (2010, January 13). Just like casinos credit card companies lures consumers in with promises of rewards and low interest rates but behind the curtains a different story is awaiting to be told. There are a few consumers that will say if they pay off their credit card balance every month they can enjoy interest free credit cards accounts, but don’t be naïve credit card companies are the business of making money and the following are some of the tricks they like to use. Credit card companies sometimes change their payment P.O. Box so that the consumer’s mail ends up arriving late and they still have to pay all of the late fees. If the consumers mail is five minutes late they still incur the late fees and a possible rate increase, on the fine print of the contract some credit card companies have a specific time that their bill should arrive at. They frequently check the consumer’s credit history and will change their interest rate if they are late on another monthly bill not affiliated with them. Selling credit card theft insurance is another scam because consumers are only liable for 50 dollars if their card is stolen. Fixed rates are not fixed; this just means that the credit card company has to give consumers a 15 day notice before they change the rate. These are a few of the tricks that credit card companies do in order to increase their bottom line. An average American household debt of 7,394 dollars (Indexcreditcards.com,2010) shows that when consumers gamble in the credit card arena the house always wins.



What is an addiction? An addiction is continued involvement with a substance or an activity despite ongoing negative consequences. Many consumers in America have become addicted to playing in the credit card system. When talking about addiction there are four common symptoms to look for they are compulsion, loss of control, negative consequences, and denial (Donatelle,2009). Compulsion, many credit card users feel as if they have more money and often spend more than they can afford. Loss of control this is displayed by the average debt per household and the record income that credit card companies acquire. Negative consequences of credit card debt are paying high interest rates, late fees, acquiring a poor credit rating and filing bankrupt is some of the consequences associated with credit cards. Some credit card users don’t realize they have a problem until it’s too late these users are in denial. They use credit from one card to pay off another; they have a surplus number of cards and pay the minimum balance on all of them. Credit cards are such a destructive force that just as if they were a mind altering drugs such as alcohol or nicotine the government had to intervene and setup rules and regulations to protect the consumer from harming their own finances with the Credit Card Accountability Responsibility Disclosure Act of 2009. Credit cards are so bad you now have to be 21 years old to acquire one unless you have someone to cosign for you or you have to prove your ability to pay them back.       



Have you ever taken a shortcut only to realize that your shortcut actually takes you longer to reach your destination? On the road to financial wealth you will find such shortcuts in the form of credit cards that promise low interest rates, and rewards to mask all of the late fees, annual fees and spikes in interest rates. Now that you have been given all of the facts as you stand at that fork in the road with two separate paths one that leads to financial freedom while the other road the shortcut leads you to financial ruin the only question that remains is which road do you plan on taking?



         





















References



Cornell University (2010, January 13). Online poker study: The more hands you win, the more money you lose. ScienceDaily. Retrieved September 9, 2011, from http://www.sciencedaily.com¬ /releases/2010/01/100112152410.htm

Rebecca J. Donatelle (2009) Health: The Basics, Eight Edition

Drazen Prelec and Duncan Simester  (2001) Always Leave Home Without It: A further Investigation of the Credit-Card Effect on Willingness to Pay.  http://web.mit.edu/simester/Public/Papers/Alwaysleavehome.pdf

Index Credit Cards (2010, February 09). Average Credit Card Debt $3,752 Per Adult, $7,394 Per Household. From http://www.indexcreditcards.com/creditcarddebt