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Money, Debt, and Credit

March 22nd, 2013 at 08:49 pm

CreditCardFree posted an article about her friend spending her tax return on unnecessary items.


This got me thinking about how I used to view things. I started to reply in the comments, but my "reply" turned in to a longer post than CCF's original musings. That, in turn, spawned this post.

In the US, and probably much of the developed world, "available credit" has become synonymous with "money." Think about how you were before you devoted yourself to paying down your debt: As long as you were still below your credit limit, you could afford to buy something.

Did you not think "I still have room left on my credit card, so I can afford this?"

From this revelation, I realized that "available credit" has become conflated with "money." If you thought that the two were the same thing, then there would be absolutely no reason to pay off debt with your tax return. Follow the reasoning in the next paragraph.

I have a $3000 tax return. I have a $12000 balance due on my $20000-limit credit card. Therefore, I have spending power of $11K. If I pay off my debt with my tax return, I have $0 in cash, and $9K due on my $20K balance. Therefore, I have "spent" my tax return for no gains in my ability to buy things. Therefore, I have "wasted" my tax return for nothing.

How many of you had thought processes similar to the preceding paragraph? You may not have thought it through quite so logically (self-anointed nerd, here), but does it not encapsulate how you actually thought about money and credit? They're the same thing in the minds of those who have not had the epiphany that "debt is bad" that most of us writing in the blogs on SA have had.

And this is why most folks don't understand us, and most folks are not paying off debt, and why most folks are going to panic again when the next downturn happens.

Money does not equal available credit. If you realize the wisdom in referring to them as "debt cards" instead of "credit cards," then you understand why we're paying off our debts. Maybe we should all start calling them "debt cards" instead of "credit cards" when we talk to others. Maybe we can start a trend that has a positive effect.

More likely, though, we'll get talked about behind our backs for not knowing the "right" words for those plastic swipe things.

5 Responses to “Money, Debt, and Credit”

  1. Bingo Says:

    This is so right on! I used to think in terms of limits, now I think- what impact will this bill, which I will pay in full when due, have on my budget? Do I want to have to reach into savings to pay this off? Sometimes the answer is yes but more often it is no.

    It also hurts to have too many of these puppies. I used to have small accounts to several stores, loving clothes like I do, and of course first charge they give you a percent off for signing up! Now everything goes on one account, which means one bill, knowing exactly when it is due, and how much I have spent. This makes it impossible to compartmentalize another bad habit. Also impossible to forget a bill is due, another easy mistake.

    Get rid of all debt cards - keep one in a drawer. If you use it, pay the balance in full every month.

    I am still paying off one debt card with a 7000 balance, but I transferred that to an interest free for 18 months and have never used that card for anything else. When it is paid I may close the account. If I keep it open it will only be to bolster my credit score.

    Great post and good way to start my weekend.

  2. creditcardfree Says:

    Debt cards! I love it. I will try to make the change in my reference to them.

    I've always been more of a saver than a spender, so I don't think I actually did look at available credit as cash to spend, but I can see that many people do.

  3. Petunia 100 Says:

    Great post. I married into a family who feels it is foolish to pay cash for anything, when you can simply charge it. That way, you get to keep your money.(!)

  4. rob62521 Says:

    Well thought out and written post. We use those cards but pay them off each month because we consider that our debt.

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