The Skinny on Credit Cards is a wonderful new book explaining the functional basics of credit cards. Jim Randel does a fantastic job of taking a complex subject and reducing it to its simplest form. He unmasks some of the most egregious practices of the industry and shows how “revolvers” get addicted to credit in college and often never get off the merry-go-round. I recommend the book to anyone who uses credit and wants to learn how to use it more judiciously.
In their own words…
Stick People Books
Welcome to a new series of publications entitled stick people books™, a progression of drawings (stick people), dialogue and text intended to convey information in a concise fashion.
Most nonfiction books are 200 pages or more. Why? Because that is what worked 100 years ago. The problem is that people have less time to read than they did 100 years ago, and there is a lot more to read than there was 100 years ago.
The real substance in most nonfiction books can be conveyed in far fewer pages. We believe that less is more. As first said by French scholar Blaise Pascal in the 17th century when writing to an associate: “Sorry for the length of this letter, it would have been much shorter had I had more time.”
We invest the time for you. We do all the reading.We then summarize and synthesize it for you.
In learning any subject, there are hundreds, maybe thousands of bits of information you need to absorb. In writing our books, we address the most important points a reader needs to learn about a given topic. Once you have read a “skinny” book, you will have a good understanding of a specific subject. Our bibliography identifies suggestions for further reading, if you are so inclined.
Although minimalist in design, drawing and verbiage, we take our message very seriously. Please do not confuse format with content. The time you invest reading our book will be paid back to you many times over.
I was going to describe the book, but the section above from the front matter of the book is very good, and it typifies the writing therein. It is a quick read, and most will complete it in 2 hours or less, but the brevity of the work is not indicative of its content; the information is in there. The reader is spared the brain damage of a typical author’s flower prose. I highly recommend this book.
My soapbox
As many of know, I am not a fan of the credit card industry. Personally I think this industry is on par with drug dealers, or perhaps the somewhat more respectable tobacco or alcohol industries. I make this analogy because credit cards do not provide anything other than a short-lived pleasure of immediate consumption. There is no “product” produced by this industry, and if the entire industry disappeared tomorrow, nothing would be lost. It can be argued they provide a “service,” and this would be true to a point. They provide a pool of savings for people who do not have the self-discipline to save for themselves.
Think about how credit cards work. Let’s say you make enough money that you could afford to put $500 a month into savings; unfortunately, you do not have the discipline. You spend the money… and then some. After a few irresponsible spending sprees, the monthly bills start coming in from the credit card company, and you dutifully make the $500 minimum payment. What just happened? The credit card bill forced the discipline on you that you were unable to muster on your own. However, there is one very big difference: instead of earning interest on you money, you are paying it instead. Over the long term, this will sharply curtail spending power. The rich can spend like rich people because they are on the good side of compound interest; debt slaves are not.
The credit card industry addicts people to their product at a very young age (they start at 18 once people reach adulthood and are bound by their contracts). Once addicted, they drain them of every available resource through high fees, high interest rates and endless promotions of the sophisticated life credit cards enable. I know this through my own personal experience.
I managed to stay away from credit until I was about 22. By the time I was finished with graduate school, I had $2,500 in credit card debt. Then, I did something really, really stupid; I discovered Ponzi Scheme borrowing. Right out of school, I tried to begin a venture with an established businessman in Texas. While we were trying to get the venture off the ground, I needed a way to support myself, so I would use cash advance checks from one credit card issuer to pay another. For about 6 months, it worked. It worked so well that I had $10,000 in credit card debt by the time we gave up on the venture. That debt lingered for a long time.
I am not some morally superior person lecturing about a subject about which I have no experience; on the contrary, I know all too well what credit card addition can do. We use the term alcoholism to describe the alcohol addicted, perhaps we should use the term creditism to describe the credit card addicted. Getting over credit card addiction is much like being a recovering alcoholic; it is a daily struggle. I have not carried a revolving balance in over 5 years. I hope to make 50 more.
This is a very important subject. The “kids” down at ASU have the latest and greatest in everything. You see them on the bus and walking down the street playing with their expensive phones and jamming on their brand new iPods. And of course, I know exactly how all of this stuff is being paid for.
I’ve been there like you – had about 10K-15K in credit card debt by the time I was out of college. By the time I realized how badly I was being screwed, I could barely make the interest payments off of what I was earning. It took serious effort and budgeting, time, and some 0% balance transer gaming every year for about 3 years before I was finally able to claw myself out.
I earn more now than I did back then, but my spending has decreased enormously. Learned to live below my means and I don’t buy gadgets or new things all the time.
Have a couple of credit cards now, but only use them for vehicle repairs, etc and always have them paid off before interest accrues. They try to send me those cash advance checks every few months which go right into the shredder (Nice try).
I hate credit card companies with a passion. From their moving range payment dates to their B.S fees to how they jack up your interest rates for no reason.
Those days are over for me. Money goes to the bank now and I let them pay me interest for a change (although the interest they pay right now is pathetically low).
I would be just as happy as you to see these sharks out of business and we start teaching people to live within their means instead of how to live above their means.
The stick figures reminded me of a hilarious piece that I came across months ago that described the whole financial crisis in an amazingly simple way. It’s called the The Subprime Primer
http://www.suburbanhousehunters.com/about/mortgage-crisis/
Jim Randel told me the Subprime Primer was his inspiration for the whole series of books he is writing. He liked its simplicity, and the use of a story makes it easy for people to grasp and remember. It said in the book, this comes from an Asian art form and technique of storytelling (Japanese I think).
I’ll cop to that as well; couple years out of college, ~$7000 in credit card debt, three years of discipline to pay it all off. In the 20+ years since, I’ve not been able to pay the full balance only a dozen times or so.
I know credit cards entice many to spend beyond their means. Even more interesting I come across many people, clients at my financial planning firm, that get themselves into card credit debt even though they have savings of 1/2 a million to 1 million dollars to pay for their stuff in cash. Go figure?? I can’t wrap my brain around why someone would pay 20% interest on $10,000 when they have access to $500,000. But, we actually see this type of behavior often. My guess is the credit card debt is likely from a purchase the client felt too guilty about buying to draw the money from their retirement savings to pay for it.
On the flip side, I love my credit cards! I use them responsibly and milk the companies that issue me the cards for all their worth. Sure, I know credit cards make all goods and services more expensive because of the fees the credit card company charges merchants. But, unless the industry goes away as a whole, it is much wiser to make purchase with your card than cash for a number of reasons (of course given you pay your balance off each month.
I’ll share with you a few times my credit cards saved me a ton of money:
1. While in Rome, Italy we had $5,000 worth of stuff stolen off the luggage rack of a train. Lucky almost everything I lost has been purchased on my credit card. I would not have been able to recoup my losses from my insurance company without that documentation.
2.) My laptop recently broke after 1.5 years of ownership. My manufactures warranty was for 1 year. I thought I was going to have to fork out another $1500 to get a new laptop until I learned my credit card company would buy me a new one. They double all warranties of purchases made on their card.
3.) We like to do a lot of our shopping online. There have been a number of times we have purchased faulty products and the merchants would not take them back. Every time this happened, my credit card company refunded the purchase without hassle and went after the merchant themselves.
4.) We have two credit cards. One that gives us cash back into our savings account and the other that gives us free hotel stays. Between the two we are able to go on one vacation per year fully paid for by the credit cards.
I would also like the note that I believe there is a deeper issue behind the credit card over spending. Most over spend to fill a void elsewhere. I don’t think it is morally right for companies to capitalize on these deeper issues we have as a society. But, I’m skeptical whether people would discover the true root of their problems in the absence of a vehicle to overspend like credit cards. They would probably just find a new vehicle to mask their real problems rather than deal with the core reason of the void.
The convenience credit cards provide small business owners is massive. Carrying around the $10,000 or so a business trip to Asia costs would be very dangerous. Credit cards make this unnecessary. I payoff all my credit cards in full and thus do not suffer the downsides.
I do favor regulation to prevent extension of credit to those who can not service it. This should be done for all types of lending. But our government has been bought off so I guess we need to police ourselves. Good luck with that.
I handle CC like you do. However, I have always objected to preapproved credit cards with high limits to my children because of their great credit scores. Too bad my kids were all under 8 years old.
The problem of ilresponsible lending has been going on for a long time. For example in the late 1970’s:
O.D. that always paid on time: good credit is offered a preapproved card with credit line of $3000. His roommate, a student that just defaulted on many loans/cards gets a new preapproved card offer at $10,000 who has no current job.
I would also like share my personal method to avoid credit card overspending.
Outside of our fixed expenses: rent, utilities, child care, insurance, we budget ourselves a fixed amount of money to spend each month for everything else. Our discretionary monthly allowance does not include big ticket items like big vacations or buying new furniture, etc. But it does include unexpected expenses like buying new glasses so we try to never spend 100% of our allotted amount each month. About 70% of expenditures go to stuff we need to buy like food and gas, 20% is for pleasure and 10% for the unexpected. If we want to spend more on a big ticket items we have a discussion about how much we are willing to take out of savings to pay for it (I find it is harder to see your savings account go down in value for a big vacation than to pay for it out of wages which also curbs overspending). We put almost everything on credit cards but keep track of the purchase in excel which subtracts each purchase from the monthly budget (This too helps curb overspending because it is hard to watch the amount dwindle.)
I tell you this can be tedious at first but after awhile it is addicting because of the amount of wealth you will amass. My husband and I are quite young and have a six figure savings and zero debt.
I don’t understand how people spend money that they don’t have. I have never been that way. I’m 27 and have never been in any credit card debt. When I was a student I just barely spent any money and had a job the whole time. Now-a-days I put about $2000 a month on my AMEX and just pay it off twice per month and I get about $800 cash back for buying shit i’m going to buy anyways. I blame my frugal parents.
Our situation is similar to most of the posters who manage their cards wisely. We get offers all the time but they are shredded as soon as they are received. We have four cards, but two are never used. We don’t even have the physical cards anymore since those are shredded upon being activated.
We, in 25 years of marriage, have paid one interest charge on our credit cards. I track our spending and use our cards to make us money like McDonna1980 does. It does take discipline which most people who are fresh out of college don’t have.
We have instilled that fiscal discipline in our college aged daughter to the point where she does not want a credit card. She prefers to pay her debts up front and off immediately.
Her six figure savings account, courtesy of a deceased relative, has only increase since she received it. She over spent one semester and was horrified to see the balance on her money decrease that she ceased all spending and is now bordering on miserliness!
From the blurb it looks like a must read book for anyone who owns a credit card. From the writings, it could be very well known that handling a credit card is not that hard and that cool. Handle with care!!