Why? Because it doesn't feel like spending money!

You don't have to cross the psychological barrier of handing over a thick wad of notes every time you make a purchase. Instead you hand your card over, the assistant swipes it and then hands it back to you. You've not actually parted with anything.

And what's more, credit cards give you the opportunity to get the goods home and use them long before you have to start paying for them. This can be up to eight weeks later. So by the time you realise you can't really afford these items, it's too late to take them back.

Plastic Money

It's promoted on the grounds that it's convenient to use and safer to carry than cash.

I agree!

Convenient in the sense that it will help to boost shopkeepers' profits with money that isn't yours! And safe in the sense that instead of being mugged by the criminals, you'll be ‘mugged' by the allure of snappy advertising and ‘cool' merchandise.

Going shopping with a credit card (or a storecard for that matter) is just like walking around with a few thousand dollars in your pocket. A few thousand dollars I may add, that's not yours!

High Interest

And that's before we consider the amount of interest that most credit card providers charge. Almost every credit card will charge you between one and two percent interest per month on any outstanding balance (another attractive sounding words for debt!) So for every thousand you owe on credit cards, you'll be charged somewhere between $10 and $20 per month in interest!

Now that may not seem like much, but what if you owe $5000, $10000, or even more? And remember, that's before you start to repay the money you owe. It's easy to see how you could be paying two or three hundred dollars a month on credit card interest alone.

Low Interest

Okay, I'll admit that there are always a number of attractive looking credit card offers available. You know, the type that promise 0% interest on all balance transfers for 6 months, or an extra low rate of 1.9% per annum on all new purchases for 12 months, blah, blah, blah!

But there's a downside to these offers. Because surprise, surprise, all that these deals will encourage you to do is to spend more!

First, your debts will become much easier to service. Instead of costing $300 a month to avoid repossession, it will cost you perhaps $50. All of sudden you feel rich. Now what do you think your first thought would be? Using that money to pay off your debts? I don't think so!

Second, when you're out shopping and see another ‘must have' item, six months interest free credit seems like an eternity. And before you know it, you're at the counter whipping out your credit card.

And what happens when the low, low rate ends six months later?

Unless you move your debt to take advantage of another ‘tempting' deal, the interest rate on your debt will suddenly go through the roof. Let's face it, the card company has to recoup the money that it lost on your special low rate deal somehow!

It takes a lot of willpower to benefit from these low rates of interest. But how much financial discipline do most people have? If they were financially disciplined they wouldn't have got to the stage where they have to juggle large debts between credit cards!

Remove The Danger

So my message is simple. If you want to clear your debts then you must cut up ALL of your credit cards TODAY! While they're burning a hole in your pocket, they'll be a constant source of temptation. Despite all your intentions about keeping them for convenience or dire emergencies, it's too easy to slip back to your old ways and destroy any progress that you've made. I know that from bitter experience.

If you don't cut them up then all I can take from that is the fact that you don't really want to become debt free. Taking the scissors to your plastic is a sign of commitment.

But if you just can't bring yourself to get rid of your plastic cards, and are tempted to keep them ‘just for emergencies' then I'll have to be blunt. If you don't cut them up, two things could happen:

If you keep your cards intact, and put them in the back of a drawer rather than carrying them with you, they become a ticking time bomb! Let me explain. You take steps to reduce your spending. You try really hard. Through gritty determination, you might even be getting somewhere. Your debts might be shrinking.

Then one day it happens. Financial Armageddon! You might be feeling in a low mood, or perhaps you just open the drawer and see them peeping out at you, saying ‘go on, you deserve a treat, you've done so well for so long, give yourself a reward'.

Kaboom! All that hard work and sacrifice undone in one moment of retail madness! It's just another temptation that you could do without. Reducing your spending is difficult at the best of times, even if you don't have a weakness for buying unnecessary things. Don't even give yourself that option. CUT THEM UP!

If your debts get out of control and you become bankrupt, you won't be allowed to have a credit card or a storecard. You'll have all the financial capacity of a five year old child! Is that what you want!

When you become bankrupt, your plastic cards are sent to jail for a number of years. It will be an offence to obtain or use credit of any type. Are you still as reluctant to cut up your plastic cards?

by Stuart Laing

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