How Can Debt Be Prestigious?

Over 50 years ago, Frank McNamara of New York's Hamilton Credit Corporation came up with a way that businessmen could charge expenses at twenty seven different restaurants in New York by using one card, the Diner's Club card. Since it was available only to affluent business people, it was very prestigious - like an exclusive club. In reality, it wasn't a credit card, but a charge card shared by these twenty seven restaurants, who were then paid by Diner's Club - who required that the bill be paid in full every month.

The card was a simple paperboard thing that listed the restaurants where well-to-do business men could charge business lunches. It doesn't sound all that impressive, does it? Oh, but wait... there's more.

Less than a decade later, Bank of America created BankAmericard, which eventually became VISA. It wasn't until the 1960's that City Bank of New York issued the Everything card which eventually became MasterCard - and changed the way America spends its money.

Soon there was the purple card, as in royal purple. Less than a decade after the first American credit card had been issued, American Express had created a card that was again an expression of exclusivity. A few years later, the card was green, then it was gold, and finally, the most "exclusive," platinum.

It's not just anybody who can carry a platinum card, although many do. A purple or green or gold or platinum credit card, or any credit card, is not a sign of prestige. It's a sign of using money before you have it - also called borrowing and going into debt.

Most of us have credit cards of some sort. How we use them makes a big difference in how much they cost us. If we use them as a "line of credit" - i.e., buy things with the intention of paying them off over a long period of time, it can be very expensive.

Whether you want to use a credit card as an automatic loan or you want to pay off all charges every month, it's up to you. If you have a credit card with a low rate of interest, it could be well worth it to buy an item on credit if you will pay it off as quickly as possible - within a few months.

What is more important than the exact way you use your credit, is having the self discipline to carry through on whatever plan you decide upon.

Just like anything else you do, don't charge anything blindly and don't buy on impulse. Drawing money from a savings account at 3% interest makes a lot more sense than borrowing at 8%, so think about it first. If you find you need, really need, to pay for something with a credit card, do this:

Divide the amount by three or four or six - however many months it will take to pay it off and don't forget to add in estimated interest. Write it down and keep it with your monthly bills. Every month, pay it along with your other bills. Don't let it slide just because the credit card statement says you only need to pay $10 or $15 or $20. If you pay their minimum (by law, only 2% of the balance), you'll be paying on it for a very long time and you'll be paying a lot of interest as you go.

Being in debt is a way of life for most. Considering how few "four letter" words there are any more, this is one that needs to be shamed out of existence in any frugal person's life. Change your "debt" to "credit." And drop the card.