Thursday, September 28, 2023


People who pay off their credit card balance every month are known as "deadbeats" in the credit industry, as they never pay any interest charges.  I pay off my balance daily, so they must really hate me!

According to Investopedia, a person who pays off their credit card balance monthly is known as a "deadbeat" - and it is not hard to see why.  The merchant fees of 1-3% (or more) per transaction are not profit to the credit card company - that money barely covers the overhead cost of running the system - the computers, shipping out physical cards, customer service, and the like.  They break even on merchant fees.  The real money is in recurring interest charges of 7-25% (or more!) that many - more than half - pay, as they carry a balance from month to month.  As many as 15% have carried a balance for almost two decades!

That is a LOT of interest to pay on a cheeseburger you shit out in 2006!

This should not come as a surprise to any of us - that 55% number is dynamic.  Chances are, over 90% of the population has paid credit card interest at one time or another.  As I noted when I started this blog, everyone, it seems, goes through a credit card debt crises at one time or another.  As young people, we start out with a shiny new credit card and think we've "made it" when in fact, we've just stepped into a deadly trap.

We spend on the card and pay it off - the first month.  The second month, we are starved for cash (having over-spent the month before) so we pay off only part of the balance and pay a small amount of interest.  We'll catch up next month, right?  Maybe those lottery tickets will pay off by then!  This is how people really think, deep down, even if we don't want to admit it.

So the balance slowly climbs and we try to forget about it.  Pretty soon, we're barely making the minimum monthly payment.  And after that, well, we don't even do that.  Late fees apply and a "penalty" interest rate kicks in.  If you had trouble paying off the balance before, well, you'll never pay it off, now.  Either you have to sell a kidney or declare bankruptcy.  There are no other choices.

That doesn't stop people from looking, of course.   People in perpetual debt are easy victims for con artists, as they are always looking for an easy way out.   Maybe that click-bait ad on the Internet that talked about a "government program" to get you out of debt is legit?  Hope springs eternal.

Eventually, the money has to be paid back - it always does, as student loan borrowers are sadly discovering.  And often, what sticks in people's craw isn't that they have to give up a meal a day to pay off the debt, but that they have to sell the hobby car or jet ski or forego the rest of their planned "sleeve" of tattoos.  For most Americans, intractable credit card debt means giving up luxuries - the very same thing that got them into debt in the first place!

But what about the very, very poor who really are living hand-to-mouth? Most credit card companies won't touch them to begin with.  Sadly, there are companies - "payday loan" places - that will milk even this thin gruel for a few drops.  And sadly, these sort of deals were once deemed illegal until a certain political party convinced everyone that laws against usury were "bad for business" - their business.

But I digress.

We were camping in an Army Corps park ($22 a night, right on the lake!  $11 a night with the "Geezer Pass") and a couple next to us had a very fancy big 5th wheel trailer with four slide-outs and all the toys, plus a 1-ton pickup to pull it with.  We looked pretty shabby in our little trailer and used 1/2-ton truck!

They were nice folks and we had a nice chat.  They were about our age, but still working.  I overheard the husband talking to his wife about a credit card offer - "0% interest for six months on balance transfers!" he crowed.  I realized then, they were heavily in debt and couldn't afford to retire, even though they could "afford" a lot of nice toys.

And yes, those balance transfer things might be a lifeline, but they usually come with a 2-4% upfront transfer fee, so the credit card company is, in effect, charging interest on your 0% interest.

We've met quite a few couples like this in our travels. Sometimes, the husband is retired while the wife is still working - a situation that makes us scratch our heads.  If one can afford to retire, why not the other?  Even if you are forced out of a job and your spouse still has to work two more years to be vested in their pension or something, why not find a part-time job yourself?  The idea of one spouse being retired while the other still works makes no sense to us.  But enough of my soapbox.

What was an interesting revelation from all of this was that appearances can be deceiving and just because someone has a lot of shiny toys, it doesn't mean they are wealthy, in fact, far from it.  A lot of these folks in the RV park with all the nice stuff are all one payment away from bankruptcy and repossession.

And I wrote about this before - many times.  A widow approaches me about the $300,000 motorhome her late husband had bought.  She has to sell it, but owes more on the loan than the coach is worth.  Or another couple, who spent their 40's tithing to an evangelical church - buying stained-glass windows for the sanctuary, no less!  Leasing new cars every year and having fun and now broke in retirement.  They had a paid-for motorhome, but decided to "trade up" to a de-luxe motorcoach because someone at a campground mocked their old motorhome for not having a slide-out.  They couldn't afford the payments, of course, and eventually, it was repossessed.

"I'll just work until I'm 70!" they say.  Nice theory, if they'll let you.  At age 63, I am qualified for no other job even as a Walmart greeter.  The working world has no use for old people.  So a better plan is to pay off all this debt before you retire.

This idea is alien to most people.  The idea of perpetual debt is so ingrained in our society that to be "debt-free" is seen as Communist or something.  And thanks to student loans, well, we've trained two generations (or more) on the idea of perpetual debt handcuffs.  Just charge it all now - and pay later!

Later never comes.

All debt has to be paid back, with interest.  So you are not "missing out" by paying off your credit card every month, you are getting ahead.  You have to pay for those purchases eventually, so why not pay for them now, and avoid all that revolving interest charges?   Why not pay $5.99 for that cheeseburger instead of $468.83 after 20 years of revolving interest?  No, really, it is that much, at 22% interest, compounded monthly, over 20 years.  And people pay this!

Then again, as a "deadbeat" (today) I benefit from the 55% of Americans who carry a balance.  Not only do I not have to pay monthly interest (or annual fees), they actually give me cash-back, about $100 a month or so.  Contrast this with the interest I was paying - up until 2010 when I started this blog - which was more than that amount.  Who would walk away from $2400 to $3600 a year?  A lot of people, apparently.

Of course, I hear from a lot of these folks that they are "making good money" so worrying about "trivial" expenses like $200 a month in credit card interest, is not worthwhile.  They'll just make more money, later on!  But of course later on never happens.

It is sad, of course, to see this happen to people - it happened to me, at one time!  But then I realized that wealth isn't the size of your trailer in the trailer park, but cash money you have in the bank.  And being debt-free means less stress and more flexibility in your life.  It may seem keen to sign loan papers on a shiny new thing, but a year or two later, it ain't so shiny - and you still owe all that money.

Be a deadbeat - the kind the credit card companies hate!