Debt Begins When You Swipe a Credit Card

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.

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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.

Comment List

  • Jim 13 / 10 / 2014 Reply

    Check out http://www.debitize.com – it lets you use your credit card like a debit card so you can avoid going into debt.

  • Myles Money 13 / 10 / 2014 Reply

    The over-spending problem is one of the big ones for me: it’s easy to forget how much you’re spending until the bill lands on your doormat, and it never feels like you’re spending that much till you see the total. A few dollars here, a few more there, a new shirt, lunch, a few coffees… they all add up.

    • Brian @ Luke1428 13 / 10 / 2014 Reply

      "…it never feels like you’re spending that much till you see the total." That’s exactly how I felt Myles. Then we’d have to go back and figure out what the heck happened. It was very frustrating.

  • MMD 13 / 10 / 2014 Reply

    There is quite a bit of truth to all of this. I started out using my credit cards to get the free points and cash back. But lately we’ve starting pulling back on that. It just gets way too easy to spend an extra $1000 or more if you’re not careful. Whenever possible now I try to use cash for all the small stuff and reserve the credit card for the big think about it purchases.

    • Brian @ Luke1428 13 / 10 / 2014 Reply

      I know many swear by the reward points. They never seemed to work for us the way we hoped.

      I heard it said once that no one ever became rich by getting reward points. I thought that was really profound. I mean really…do we think the average millionaire cares about how many frequent flyer miles they are racking up? I don’t think so.

  • MDN 13 / 10 / 2014 Reply

    You’re absolutely right Brian. Using credit cards get you into debt even if it’s just for a few weeks. I cannot argue against that. However, I still use them and will probably continue to use them because I have been staying withing my budget for over a year now. I know that if I’m not careful I could overspend, but I’m trying really hard to avoid that… and have been successful for now. I have the money that I spend budgeted and in my bank account, and as long as I keep my spending under control, I could just collect the rewards.

    I know that what you’re saying is 100% correct. I know. I’m not disagreeing with you one bit. I’m just telling you why I use them and hopefully I won’t get into a situation where you could say "I told you so."

    • Brian @ Luke1428 13 / 10 / 2014 Reply

      I agree keeping spending under control will be hugely critical if you want to make the credit card work. My wife and I weren’t budgeting years ago when we were using credit cards. That was another part of the problem for sure.

  • [email protected] and the Beach 13 / 10 / 2014 Reply

    All very true. I think you still CAN use cc’s responsibly, but it does require a LOT of discipline, and isn’t for everyone. Now that my money is very tight because of my job situation, I don’t use my cc, but I do feel comfortable going back to that place when I don’t have to track as meticulously.

    • Brian @ Luke1428 14 / 10 / 2014 Reply

      Sounds like a wise decision Tonya. Some life circumstances call for drastic measures. Nothing wrong with that.

  • Even Steven 13 / 10 / 2014 Reply

    I’m with you on the slippery slope, I’m actually a little fearful of using a credit card again, I sometimes associate it with an alcoholic having or being around a drink, it’s better for me to just avoid the CC altogether.

    • Brian @ Luke1428 14 / 10 / 2014 Reply

      You really can live life without one despite what the industry says. It’s not a necessity by any stretch of the imagination.

  • Rachel 21 / 10 / 2014 Reply

    Great article. I’ve been using only cash the past two months and I became more aware of my budget categories and was able to stay on task. I enjoy being different. I became cc debt free last year and I will be paying off my last car loan in April. No more car payments.

    • John Schneider 21 / 10 / 2014 Reply

      Congrats on now credit card and (soon to be) no car payment! We did a little dance when we paid off our last car four years ago. It’s great not having to write that check.

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