Free Money!

Just sounds good, doesn't it?

Cash back!  Making priceless memories!  Convenience of getting what you want when you want it!

Since beginning our journey toward financial peace,  I’ve become a lot more aware of credit card advertisements.  Ironically, when we’re supposed to be collecting credit card applications that we get through the mail – you know the ones I’m talking about; “You’ve been pre-approved!” – our mailbox is sadly bereft of them.  However, there are still plenty of advertisements for credit cards on TV with Discover being the current front-runner in frequency.

The credit card companies know exactly where to get you, don’t they?  Master Card is offering you priceless moments:

New Vera Wang wedding dress: $12,000.00

Florist: $6,000.00

Watching your irritating cousin looking like a crippled monkey trying to dance: Priceless

Ahh, the memories, and they can be yours if you’ll shell out a small fortune for your wedding day.

Then there’s Visa.  “It’s everywhere you want to be.”  Want seats on the 50-yard line at the Super Bowl?  Use your Visa card for a chance to win.  Of course, the more you use it, the better your chances.  Want to be cool at the grocery store?  Use your Visa card.  Want people not to look at you with annoyance while you’re writing a check?  Use your Visa card.  Convenience and coolness all in one.

Discover has been coming out with the catchiest and most prevalent commercials of late.  Who isn’t familiar with a bearded guy answering the phone, “Hello.  Thank you for calling US Prime Credit.  My name is Peggy.”  They can become annoying after you’ve seen the same commercial for the nineteenth time, but they’re funny because they’re so true.  Now Discover is trying to hook cardholders with “cash back.”  Ohhhhh boy!

Cash back???  You mean to tell me that I can get money – cash! – back on my purchases?  Oh my gosh, I’ll be getting FREE MONEY!!!  Let’s see…  I need a new 48″ flat screen TV.  That’s $1000.00.  And groceries for the month…  $300.00. Hmmmm…  I get cash back on fuel purchases, too, so I’ll put my gas on my Discover card.  After all, I’m getting cash back.  That comes to $350.00.  So, this month I’ve charged $1650.00.  That’s going to be a lot of cash!  That’s going to come up to… $26.50 cash back*.  Now I’ve charged over a thousand dollars I do not have and that I will be paying 20% interest on.  Next month, my credit card charges will be $1980.00 with that 20% interest rate.  What a great gimmick, though, isn’t it?!  Discover promises to pay 1-3% cash back, but they charge you 20% interest.  When looking at Alec Baldwin and a pretty convincing body double, who pays attention to that pesky fine print at the bottom of the screen?

Be smart about credit.  The smartest thing is, don’t use it.  Why charge stuff and risk having to pay interest on your purchases when you can save for them and pay cash?  At Financial Peace University, the goal is to learn to save up for the things you want to buy.  In fact, Dave Ramsey teaches that, when you pay cash for purchases, you can often times get by with paying less than the ticket price.  Let’s say you want to refurnish your living room.  You save up $3000.00 for your new living room furniture, which is priced at $3300.00.  If you walk in there with 30 pictures of Ben Franklin, chances are, you’ll get that furniture for $3000.00.  What many people don’t realize is, merchants have to pay for every single credit card transaction.  There’s normally a monthly fee for the privilege of accepting credit cards, plus there is a percentage-of-sale fee for every credit card transaction, on top of a flat per-transaction fee.  So, with all these fees merchants have to pay and the expenses associated with running credit cards, merchants can afford to accept a negotiated cash price – and you won’t have to pay high interest rates.  Win-win!

* At the time of this writing, Discover is offering 1% cash back on purchases, 2$ cash back on groceries and 3% cash back on fuel.

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