Debt Perceptions: The Truth About Credit and Cards

Debt is a normal way of life and unavoidable, right? What if I told you there was a better way that was sustainable?! Read on further to find out how.

Tell someone you don't have debt and they'll likely give you a strange look of disbelief, jealousy or even confusion. Well, in this first installment on debt perceptions, you'll see that being debt free isn't weird and is possible. The only way to make good financial decisions is to be armed with the truth and it is time for a wake up call; in fact, that is how you'll find the money to fund your dreams. 

Debt Perception #1: Debt is Good

When looking at this list of debts, what kind is your favorite? Go ahead, pick one.

• Student Loan
• Personal
• Mom & Dad
• Home Equity Line of Credit
• Credit Card
• Timeshare
• Car
• Boat
• Overdraft Protection

I know, doesn't it feel a little strange to be thinking what debt is your favorite? It should feel wrong. I posed this same question on Facebook and my favorite response was, "The one that's paid off." Well, I am here to tell you there is no such thing as good debt–not even a mortgage. In fact, if you look up the original word for mortgage in Latin, it means "debt until death." Look, I was raised knowing how to pay my bills on time but not how to avoid debt. Thomas Stanley, in his book "The Millionaire Mind," interviewed a number of people, worth $10-million or more, and 75% of them surveyed advised to avoid debt. The bottom line is debt is harmful to your health.

Debt Perception #2: The Credit Score

The credit score is one of the hottest topics of personal finance. In fact, the perception is a high score means you are winning financially. However, the truth is you are simply good at taking debt and paying it back like a good slave. Sounds harsh, doesn't it? Well, according to FICO's own chart, 100% of your score is based on being in debt. Culture has convinced us that borrowing money and paying it back successfully is winning financially. But, that is a total lie.

If grandpa leaves you an inheritance of $5 million, guess what? Your score doesn't rise or fall a single point! Truthfully, credit is just other people's money (O.P.M.). But O.P.M. sounds an awful lot like O.P.iuM.– a drug...and it's addictive! It is addictive and destructive so avoid it at all costs and don't buy into the lie that you need it. 

Debt Perception #3: The Credit Card

It's easy to fall into the trap of thinking you need a credit card. Whether you think you need to build credit, have a card for emergencies, or seek to build points and earn free flights, these half-truths pervade our culture. Cash is best and you can do everything with a debit card that you can with a credit card except go into debt. For more on that, check out "The Debit Card: How to Really Use It and Avoid Theft." The average person spends 12-18% more when using a credit card versus cash. In fact, a McDonald's focus group did a study on this and found that when using cash, customers spent approximately $4.50; however, when using a credit card, customers spent approximately $7.00.  That's 45% more! In "Everyday Millionaires" by Chris Hogan, he mentions the largest study of millionaires ever conducted found that 73% have never had a credit card balance.

Not having a credit card is a wealth building habit. 

Originally invented in 1949 by a bank, since that time Americans have accumulated over $1 trillion in credit card debt, which simply demonstrates a lack of financial responsibility. The banker who invented it did so because he didn't have any money when ordering food out and found himself stuck. The idea of the credit card isn't an ideology I really want to build my life around. The fruit of this lifestyle is pretty evident. In fact, 86% of people with credit card debt do not pay off their balance every month. Not a good start! Believe it or not, this industry is the #1 spender when it comes to advertising dollars. Don't be a tool of credit or a victim of an industry that seeks to keep you a slave to debt. Instead, turn your money into a tool of your own means and find more money to fund your dreams.

Question: Do you believe debt is necessary to build your credit score? Additionally, are you dependent on credit cards?  Let me know your experience in the comments below. I would love to help you change that. 

Additional Action Items: Come join my FREE Facebook community, the “Strong Together Money Community,” in order to stay informed and encouraged as you grow in your financial journey. Also, check out my free e-book to gain additional tips on how to save and budget wisely. Not sure how to break free of that cable bill without feeling like you're missing out? You can cut those costs while still keeping your content! For more information, check out my Cable Cutting Academy today!