Yes, you heard me right; if you want to get out of the slave mentality that obliges you to the banks who issued credit cards to you, start fighting fire with fire.
What I am about to tell you is very controversial, but like Jeff Bezo, the CEO of Amazon, I prefer the word “disruption” and, at first, you are going to do a “Say What?” But, once you read this full article, you will see that this is radical thinking out-of –the-box that will work.
So, my first question to you is this: Do you have any credit card/debit cards in your purse, pockets or wallets?
Do you currently carry or you ever had a balance on your credit cards?
If you do not carry a balance do you ever use them?
How many times have you struggled to pay them off, only to have them be at a higher balance than before?
I know a lot of people always say, “Yes, I use them but I pay them off each month,” which means you are making monthly payments.
Even though most people will tell you that they pay them off each month, according to the Federal Reserve Board (The FED), as of July 24, 2012, the average balance on credit card debt per American household is $15,799, for a total of $793.1 Billion.
Therefore, you are not alone. Most people do have problems with overspending, using credit cards, and with the recent December holiday shopping season, I am certain that a lot of people are now getting their monthly credit card statements – and they cannot afford to pay off the recent purchases. Even though you vow never to do this again, but each year you do it. We all have been there; I remember it was only a few years back when it was very embarrassing to use your credit card at a grocery store to buy food. Now, when you use cash the grocery clerk looks at you as if you were a weirdo.
A NOTE of Interest: Per Federal Reserve Board data, the city with the highest percent of yearly income owed to credit card debt is Miami at 22.61% … so now you know how they all pay for those fun nights on the town and all those Chanel and Gucci purses and handbags.
So many credit cards ads are on TV and other media outlets saying, “If you owe so much on your credit cards, call us we will help” … and when you call, you find out it is really people wanting you to pay them first with money you do not have. In reality, they are taking advantage of you to help themselves, not you.
Over the past twenty-six years, I have worked my butt off showing many people how to pay their credit cards balances down, only to have them back in the same deep hole a year later … AND we would work again on paying it off second time, thinking they must have learned their lesson. But, no, in about a year the cycle repeats … I have even wrote about this in my book (chapter 14 page 69);
“Safer 401(k) Investing: How to Protect All Your Investments from Wall Street Greed and the Government
How many of you have seen so many financial experts saying “You must pay off your credit card debts”? If you are one of the 1% of the people who can do this and pay with cash, that is super, give yourself a large pat on the back. But, as most of you know, and based on the Federal Reserve Board system, this does not work.
What should you do? Here comes my radical advice:
1) Do not pay the card issuers off, pay only 110 % minimum monthly payment (example if you minimum $100, pay $110).
2) Open an online brokerage account such as E*TRADE or Charles Schwab and start using the extra cash to buy/invest in the credit card companies’ stocks. Yes, start investing in the very card you carry in your wallet. That is; if you carry a Master Card, buy Master Card stock (MA), if you carry Visa, buy Visa stock (V), and if you have an American Express, buy that stock (AXP), too.
Another option and I think this is very good, for the person who can only buy a few shares, is to buy the shares directly from the company itself via their Dividends Re-Investment Plan (DRIP). That is; you go on the company website and search for their “investors page,” then do a search for DRIP (remember even if you can only buy one share each month, just keep doing it until you have accumulated quite a few shares). Most important; make sure all your shares are enrolled in the DRIP … On the E*TRADE website, you have to do it the day after you buy the first share, and on the Charles Schwab website, you can click the enroll bottom as you make the trade.
DIRECT INVESTMENTS PLAN: You can also call up the actual company and tell them you want to enroll in their DRIP program (Dividends Reinvestment Plan) and they will gladly help you to become a shareholder.
This may sound crazy, but have you ever watched these huge fires that burn on the West Coast? You notice that pouring water on these flames does not control the fire. Their best technique is to start a fire on the far perimeters and burn away everything so when the fire get there, there is nothing to burn … they are actually fighting fire with fire! For the average person out there who uses credit cards, you can only win if you do the same; don’t fight them, join them!
Let’s take a look at the 3 major credit cards since they first became publicly traded stocks. They are American Express, Mastercard and Visa. Assuming if a person had invested 20% of the average $15,779 credit card balance, which would be $3,155.80, and invested this amount in each of these stocks as far back as we can find trading data.
Let’s look at Master Card first, which is my favorites. One share of Master Card when it first went public in in May 25, 2006 at a cost of $4.49*, so if you had invested $3,159.00, you would now own 700* shares, and in less than 8 years as Jan 16 2014 your $3,159 investment would be worth a whopping $57,529.90, more than enough to pay off the average $15,779 credit card balance.
Visa became a public company on March 19,2008; one share would have cost you $54.27*, and again using the same example of investing, with a $3,159 investment you would own 58* shares, and in less than 6 years, as Jan 16, 2014, your $3,159 invested would be worth $12,913—not as much as Mastercard, which has been trading two years longer, but it is up over 300% in only five years, for an average of 60% per year (60% per year is still outperforming even a high-end average interest rate of 24%).
Last, at but certainly not least, is American Express, which has been publicly traded much longer; I can find data on Yahoo Finance as far back as thirty-six years ago. On April 1, 1977, one share cost $.94* and again using the same example of investing, on a $3,159 investment, you would own 3,360 shares. As of Jan 16, 2014, your $3,159 investment would be worth $292,723—that’s over 18 times the average household credit card balance!
Take a look at America Express (AXP) example and ask yourself; if you have that much money, would you worry about or even have a credit card balance? As a matter of fact, you could just simply pay it off the balance and have the extra cash to play with—or re-invest.
Final Question: Of the over $793.1 billion that the US consumers owe on their credit cards, how much of this-almost 1 trillion they do owe directly to Master Card and Visa. I have yet to meet someone who knows this simple answer: Which is $0! None! Nada! Zilch! Neigh! Don’t believe me, ask yourself this question; have you ever written a check directly to Visa or Master Card? No, you owe the money to the banks, retailers and companies who issued you the credit cards.
In summary, the banks, retailers and other companies who issue you these credit cards and lend you the money want to keep you trapped for life because, charging you from 9% to up to 30% when the very same banks only pay you less than 1% on your checking and saving accounts, is a wonderful business to be in … as a matter of fact, I have met people over the years who have, for example, $10,000 in their checking accounts that is earning only 1%, but they have a credit card that is issued by the same bank with a balance of $7,000 and that same bank is charging them 12.9% interest!
As I mentioned, if you are one of the very few that do not carry a balance on your credit cards, that is wonderful (yes, you should also own shares in these companies), but for millions who do carry balances and you have struggle every year to pay them off, do not try to fight the banks and issuers because you will only beat them at their own game if you are a part of them, and you own part of them by buying and holding their shares; over the long term, you will be on the winning team! Please remember unless you are one of the top 10 executives of a company, you cannot get wealthy trading your time for money, there is just not that much time in the day.
*Price adjusted for dividends and splits and assuming you do not sell any shares and have all your dividends reinvested
As you All know by now and as it says on the front of my web site, I am not a register investment advisor/Advisor, all my writings and communications are not intended to be of that nature: Please See Disclaimer and copy rights on my web site http://www.theofficialmoneycoach.com/