Today we present to you a guest post from Brian Fourman of Luke1428. Luke was one of our Money Masters last summer and we’re excited to have him guest post about debt for us while we’re visiting John’s family in PA.
I often hear people justify their use of credit cards this way, “Well, I pay it off every month so it’s fine.” The implication imbedded in that statement is that they are not really going into debt if they pay the card off at the end of each month. The balance is zero so there is no and never has been any debt.
That mindset could not be more wrong.
The minute your hand swipes the credit card at the processing terminal of the retailer you have gone into debt. You now owe that company money. It doesn’t matter that the transaction won’t show up for another three weeks on your credit card statement. You still owe them…and that defines what debt is.
Buying Time With Debt
What you have really bought yourself by using a credit card is time. You now have until the statement comes due to gather the funds necessary to pay off that purchase. If you can’t do that then the balance rolls over into the next month and interest charges will accrue. This scenario cannot happen when using a debit card or cash.
Of course a cash transaction is just that. You pay the merchant in cash and that’s that. The deal is done.
A debit card transaction is only slightly more involved. When you swipe a debit card the amount of the transaction is immediately deducted from your available balance in your linked transaction account (usually a checking account at a bank). It does take a few days for the transaction to clear but the money is gone. You can’t use it for anything else.
So in using either of these payment scenarios I do not go into debt to complete the transaction.
Why Debt Matters?
At this point you might be thinking, “What’s the big deal? Who cares if I am in debt for three weeks until the bill comes?” Well, I can think of at least two reasons that have personally impacted my life and were obstacles for me to overcome before I could move forward with my finances.
The Practical Side: Overspending
When I used credit cards for transactions, I routinely overspent. I found it difficult to keep track of all my spending, mostly because there was no follow through. I didn’t track my expenditures in a budget or input them into a money computer program.
In essence I didn’t think it mattered because I didn’t see it as debt. So I just let my spending ride. I’d pay it off at the end of the month I told myself, so I would just deal with it then.
Except when the end of the month came, my expenditures were more than my income. So I’d have to draw on my savings to pay off the bill. That didn’t feel good but was something I practiced for several years.
You’d think all it would take to change my behavior was some education and little more discipline. While that would be awesome advice to give to anyone challenged by overspending, I needed something a little deeper. I needed an emotional and spiritual awakening.
The Spiritual Side: An Awakening
My faith in God is very important to me. It’s the foundation upon which my life is built. However, it wasn’t impacting in any way my daily financial life. I was being wasteful and not properly using the resources I had been given.
Through a series of events, I was challenged to read through the Bible in a year and, while doing so, record all the verses that highlighted a money related theme. I found over 400 passages in all that year that covered a host of financial topics including planning, giving, spending and – you guessed it – being in debt.
The debt verse that really hit home was from Proverbs 22:7, “The rich rules over the poor, and the borrower is servant to the lender.” I knew I didn’t want to be a servant to any lender, not even for three weeks while I was waiting on my credit card statement to arrive. Sensing this conviction, and not wanting to be a hypocrite in my daily walk, I chose to cut up all my credit cards and move to a debit card or cash payment system for transactions.
A Slippery Slope
It’s easy to convince yourself that you are not in debt if the credit card bill is paid off at the end of the month. I found that mindset led me down a slippery path that took some major intervention and retooling of my money practices to overcome.
If you continue to use credit cards, proceed with the mindset that you are indeed racking up short-term debt that will have a due date for which you had better be prepared. As I learned, it’s very costly not to be.
The better scenario for me was to swear off debt completely. No more loans, no more mortgages and no more credit card debt. That’s led me to a life of greater wealth and peace of mind than I could have imagined years ago.
What’s your take on this? Have you considered the semantics of what the term “debt” really means? Does it matter if you are in debt for three weeks until your credit card statement comes due? How have your emotions about being in debt shifted or changed over the years?
About the author: Brian Fourman is a former private school personal finance and Bible teacher now turned stay at home dad and blogger. He helps individuals and families navigate the challenges of managing their money so that they can grow wealth and live with greater peace of mind. In his down time, he loves hanging out with his four kids and hearing his wife talk about all the cool things CPAs do at work. You can check him out providing encouragement and inspiration on his blog at Luke1428.com or by connecting with him on Facebook, Google+ and Twitter.