A Crown Money Management advisor explains why credit cards encourage overspending and recommends switching to cash and debit cards instead. The psychology of swiping makes you spend more than you would with physical money.
Hi, welcome to Crown Money Management. Just a few quick hints and tips which I want to run through with you. First things first is I just hope you guys all realize that traps that credit cards, obviously credit, I mean, you know our philosophy here at Crown is a cash diet. No credit cards whatsoever. Because we know that the banks are so clever. They're exceptionally clever when it comes to selling their product. And their product is debt. And so like any other business, their job is to try and sell as much of that product they possibly, possibly can because the returns on that sort of product are 16% plus, which is a phenomenal return. For every dollar out there, they're getting 16% back on that. So you've got to understand that the banks are there trying to sell as much debt to you as they possibly can. And that's why you're getting all these credit card offers in the mail consistently. And so we're just saying, please, we know the numbers. Over the last 10 years, clients who have had credit cards have done nowhere near as good as those clients who have run off a Visa debit card. So. So if you want to give yourself the best chance of moving towards financial independence, you must not run off a credit card system. It's so much harder to track what you're spending throughout the month. And as a result, we're spending usually more than what we're actually earning when we're actually using a credit card. We find that a study has been done by McDonald's and they found that people walking into McDonald's with credit cards are spending 47% more on every meal than those clients who are just using cash. And so next time you go to McDonald's, look at all the PayWave ATM consoles on the front of the counter. They don't want to open their till anymore because they know that every single person paying on card is going to spend 47% more because it's easier. We as humans will spend what we have direct access to with a credit card. Our mindset is, I've got up to five grand available. What do I want? Not, I've got $500 to last me until Friday in my Visa debit account. What do I need? We're trying to shift the mindset and become conscious of speaking spending again. And the only way to do that is to run off the cash based system. Because with credit cards, the subconscious mind says I'm not at my limit, therefore I can afford this. It's only when I'm at my limit can I no longer afford things. And that's not necessarily true. Just because you're not at your limit doesn't mean you're not spending more than what you're earning there. So if we want to pay down debt, we want to move towards financial independence, we must run off a cash based system, be conscious of what we're spending and we've got some fantastic new software out there which is going to help you become even more conscious of exactly where every single one of your dollars goes. So looking forward to getting that out to you. But please refrain from credit cards. They are a trap. We know in two, three years time you're still going to have that credit card debt. It's like a marlin. You have a marlin hook, that bait and it just runs and runs and runs. So hard to pull that back because the actual Compounding interest is 16%. No matter what you're throwing at it, very little is going to be coming off the actual debt there. So stay away from credit cards, get onto a Visa debit card like we should have from day one and you're going to get the best results. You're going to be paying down that debt so much more rapidly. Enjoy.
