Is Your Credit Card Costing You More Than You Think?

Ralph00:00:00

Have you ever felt like your credit card is this tiny devil in your wallet? Whispering sweet nothings about instant gratification while secretly draining your bank account? Well, today we're exploring the true cost of credit card debt and how it might be silently sabotaging your financial future and your faith. So if you're feeling trapped by credit card debt, stick around because I promise you this, by the end of this episode, you're going to have practical steps to break free and finally find financial peace. And we're going to get started with today's question from a listener named Cora in just a moment.

Podcast Announcer00:00:33

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side. Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair. Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph00:01:09

Hello everyone and welcome to the Ask Ralph show where we're all about mastering your finances from a Christian perspective. I'm your host, Ralph, your Financial Evangelist. Thank you for joining me today and I promise you, this episode is going to be packed with valuable insights that will make a real impact on your life. So let's get started. Now, today we're discussing a topic that hits close to home for many of us. And that is this simple question. Is your credit card costing you more than you think? Truth is, credit cards can be a blessing or a curse and understanding their true cost is absolutely crucial for managing your finances wisely. So today, we're going to explore the hidden fees, we're going to talk about the impact on your credit score and more importantly, and this one I think is crucial, how to manage your credit card debt God's way. And here's my promise for you. By the end of the show, you're going to have practical steps to finally take control of your finances and live debt free. So if you're ready to laugh, if you're ready to learn and maybe even cry a little, yes, I might make you cry today, buckle up. Now before we just explore today's topic, let's quickly recap yesterday's show. Yesterday, we talked about this question. Are you still on the hook with the IRS? How far back can they claim you owe? It was a riveting discussion on how to handle tax issues and more importantly, ensure you're compliant. So if you missed it, I'm going to encourage you to go check it out at askralph.com. So now let's move on to today's question from Cora. I promised you a question and here it is, and this is what Cora writes. She says this. "Hi Ralph, I'm at my wits' end with credit card debt. It's been a constant struggle for years and I feel like I'm drowning. I started using credit cards to cover unexpected expenses, but now it's spiraled out of control. I'm constantly paying off interest and it feels like I'm never making a dent in the principal. I can't sleep at night. I'm always worried about how I'll ever pay this off. It's affecting my mental health, it's affecting my relationships, and it's affecting my ability to save for the future. I feel like a failure and it's causing me much stress and anxiety. Do you have any advice on how to manage this and how to finally get out of debt? I am desperate for some hope and practical steps to turn this around. Thank you so much for your help." Well Cora, let me just say this. Thank you so much for reaching out and sharing your story. And I can truly emphasize of what you're going through. Credit card debt can feel like a never ending cycle. And it's so easy to get overwhelmed. That constant stress and that anxiety can be truly debilitating. And it's not uncommon to feel like a failure. But let me assure you, you're not a failure. There is hope. I've seen many people, including this person, myself, overcome this challenge. So today we're going to discuss practical steps. Yeah. I'm going to give you practical things to help you get out of debt and find financial peace. So Cora, remember you are not alone in this. We're in this together. Now if you've got a financial question you'd like me to address, head over to justaskralph.com and submit your query. I love answering your questions and it's the heart of this show. So as we explore the topic of credit card debt, let's start with a powerful verse from the Bible. And this one comes to us from Romans chapter 13 verse 8. You know, I love the book of Romans and it says this, "Owe no one anything, except to love each other. For the one who loves another has fulfilled the law." And see, think about it. This verse reminds us of the importance of managing our debts responsibly, and it truly focusing on what truly matters. And that is love, that is relationships. So let's keep this in mind as we explore ways to manage our credit card debt. And I just want to tell you, I am so grateful for the opportunity to help people like you, Cora. Help people navigate their financial challenges. And I am so very thankful for the experiences and the knowledge God has given me over the years. It's a privilege to be able to share this with you and help you find financial freedom and grow in your faith. So let's get to that. Now let's get to the heart of the matter. Credit cards have been around in some form since the early 1800s. But the plastic cards we have today have really only been around since 1960s. Truth is, I say this on the show all the time, they are a tool, and they can be a very convenient tool, but they also come with hidden costs and pitfalls, and that's what we need to look out for. So let me share a story with you, Cora. A few years ago, I was working with a client named Meredith. Now, Meredith was a hard working person. She's a hard working individual, but found herself in a similar situation to you, Cora. She had racked up significant amounts of credit card debt over the years. Now hers was mostly due to impulsive spending and a lack of financial planning. And her debt, just like yours, Cora was affecting her relationships. It was affecting her mental health and it was affecting her ability to save for the future. Now, one day, Meredith came to me, she came in for some financial counseling. She was feeling overwhelmed. She was feeling hopeless and I could see this on her face. She came and sat down in my office and she just let on the waterworks because she was completely lost. She had no idea what to do. So as I do with all clients, we sat down, we went through her financials, we went through her checking account, we went through her credit card statements. And what we found was really eye opening. When we looked at how much she was paying in interest and fees, we discovered that her credit cards had an average interest rate of over 20 percent and that's bad enough, but here's the big problem. She was only making the minimum payments. This meant that she was barely making a dent in that principal. And essentially, she was just throwing money away on interest. Now, I'd love to tell you that Meredith was the exception, but Meredith's story is a common one. Many people fall into the trap of overspending and they, they fall in the trap of accumulating credit card debt. So we've got to start by asking ourselves this question, Cora. Why does it happen? Well, I think it all starts with some psychological factors, and I just want to break those down today. The first one is this. That's the allure of instant gratification. Credit cards allow us to buy things we want without having to pay for them immediately. Hey, just throw that plastic down and this can lead to some major impulsive buying decisions, and I'm going to talk about how to get past these things in just a little bit. But this impulsivity, this instant gratification where we focus on the pleasure of acquisition rather than the long-term financial consequences creates a huge psychological problem. And that's where it all starts. The second thing, and this thing can't be undersold, and that is social influence play a significant role. If you're like me, you are constantly bombarded with messages, messages that tell us to buy certain things, to be happy. It'll make us happy. It'll make us successful. And this creates this pressure. It creates this anxiety, creates this pressure to spend because we got to keep up with those perceived social standards. Even if it means going into debt because we see the highlight reels on Facebook and social media and TikTok and we want to be just like that person. The third thing is emotional spending. It's a real issue. I don't know how many times I've gone out and done, you know, some emotional spending to try to make myself cope with emotions like stress or sadness, or sometimes it just pure boredom with our iPhones and electronic gadgets. It's so easy to do that. And if you've got a credit card, it makes it easy to give them, you know, that number and then you go on this emotional spending spree. And that leads to huge, regrettable financial decisions. It's so easy. It's right at our fingertips. I mentioned this on the show the other day, I can order something right now and most likely it'll be delivered here to my office by noontime from Amazon. And then the last part of this, and I can't undersell this one either. Here's the concept of painless payments. It doesn't cost us anything. When we use that credit card, we're not physically seeing the money leaving our wallets. It's just out there in the credit card land somewhere. Now, we'll see it when we get the statement, but we don't see it immediately. It doesn't come out of our pocket. We don't see our bank account going down and this creates a disconnect. It creates a disconnect between the purchase and the payment. And what that does is it makes it easier to overspend. Hey, listen, the credit card companies are well aware of these psychological factors. I hate to tell you this, but it's true. That's what they're in the business to do. And I don't find fault with them. They're in the business to make money. They're in the business to make you use your credit card or entice you to use your credit card so they can charge you interest so they can charge the vendors fees. But credit card companies are aware of these and they use these to their advantage. They do that by offering rewards programs, like cash back, and travel miles. And they do this to incentivize spending. Hey, it's all based on go spend, go spend. I must get an email a couple times a week saying, Hey, did you know you've got available credit on your credit card? Hey, did you know you can buy this or you can buy that? Hey, they also make it easy to apply for credit cards and have increased credit limits. I remember when I was in college and I've told this story on our live show a couple weeks ago, I was walking out of one of my buildings after a class and there was a company out there promoting credit cards and I walked up to them because they had some cool giveaways. Maybe it was a University of Delaware T-shirt or something that had their logo on it. And I said to the person working there, I say, Hey, I don't even have any income. Can I apply for your credit card? He's like, absolutely. We love students. And see, that's what the credit card companies are using to incentivize that spending because that guy at the campus knew that day that the next thing I was going to do was run out and charge that credit card up. And I did, and I got myself into a slew of credit card debt right after college. And it took a lot of time to get past that. But Cora and everyone else listening, the true cost of credit card debt goes well beyond that financial thing. Yes, it can negatively impact your credit score and it can negatively impact your mental health. So let's take a minute and talk about that credit score because that's something we need to address. Your credit score is a number that represents your credit worthiness. A lot of people get angry when I say that, but it's just true. You are judged by a number and that number is your credit score because lenders are going to use that to determine whether to approve you for loans. It's that simple. I used to work in the credit union industry. We would look at credit scores, we would look at debt ratios, but that credit score really is the meat of what it came down to. It also tells them what interest rates to offer. So the bottom line is the lower your credit score, the more it becomes difficult to get approved for loans. It's not just loans. It can be difficult to rent an apartment or even get a job. Some jobs are actually looking at credit now because they're looking at character. And if you consistently spend beyond your means with your credit cards, that can lead to significant debt accumulation that in the end, and I experienced this myself, it became unmanageable and this led to all kinds of financial stress, all kinds of financial anxiety. And one of the biggest factors that affects your credit score is your credit utilization ratio. I've talked about this on the show many times. I want to explain that for a minute because all of the things we're talking about all lead to this. So think of your credit limit like a bucket and your outstanding balance is the water in that bucket. A lot of people don't understand this credit utilization thing, but your credit utilization ratio is the percentage of that bucket that's filled with water. It's really that simple. So picture the bucket and your outstanding balance is the amount of water in that bucket and your credit utilization is how high it's filled with water. And here's a truth bomb. A high credit utilization ratio, meaning your bucket's almost full, or maybe it's running over, that's going to lower your credit score significantly. In addition to the risk mentioned a few minutes ago, using a credit card can also increase your risk of identity theft. The truth is hackers can steal your payment details when you shop online or in person. I've done many shows about that. So you just need to be aware. So Cora and those others listening, you might be asking, all right, Ralph, that's great. I understand the challenges. I understand the pitfalls, but how can we do this? How can we manage this in a successful way? Well, I'm glad you asked because I've got some practical steps for you. Number one step. If you don't hear anything else I talk about today, pay your balance in full each month. If you do that, you're going to completely avoid interest charges. You're going to avoid any late payment charges, and it's going to keep your credit utilization low. I was talking to my youngest son this weekend. He was over. We did some things around the house. We actually went to the beach and had a nice pizza dinner. And we, he was talking about his credit card. He's finally got to the point where he paid off his credit card. And he said, dad, I don't ever want to get in that position again. I said, well, here's a good idea. Make sure you're paying it off every month. And he says, dad, I'm going to do one better than that. Every time I get paid, now, he's a barber. He gets paid every other week. He says, I'm paying my credit card every other week when I get paid. He said, another thing, dad, I am not going to spend any money on my credit card unless I already have that money in the bank. And I said, well done, son. So that's the first thing, pay that balance off in full each month. If you want to pay it more frequently than that, that's even a better option. Second thing you got to do. You've got to track your expenses. We talked about how it's so easy to spend and not think about the consequence of this. Well, if you track your expenses, this is going to help you stay aware of your spending and it will help you avoid overspending. It's so easy to just wait and you get that credit card statement at the end of the month or you log in and you see that same, you're like, wow, where did all the money go? That's because you're not tracking it. You don't know how much you're spending. And those little day in and day out expenses, they add up over time. So that's the second thing. Track your expenses. Number three. And this one is a challenge. It's been a challenge for me. And that's avoid impulse purchases. One of the guys on my weekly live show, Craig, he said he does this. He basically puts a timer and he waits at least, I think in his case, he said 48 hours before he makes any non essential online purchases. He basically said he parks it in the cart on the online site and waits to make those things. And that one is huge. It's so easy to just open up an app and go to Amazon or go to Walmart or go to Target or one of those online shopping sites and just drop some money. You put it on your credit card, you don't even know it. And do you really need that stuff? Do you really, is it really going to be impactful if you wait 24 hours, if you wait 36 hours, or maybe you've got to wait a little bit longer, 48 hours. And I started doing this and it's amazing to me how many times I go back and I look at this cart and I'm like, Man, I don't even remember putting this in my cart. Well, clearly I didn't need it because if I needed it, I would have had to gone back and buy it. So that's a number thing. Number three, avoid those impulse purchases. And number four, and I probably should have put this one first. Pray for God's guidance. Cora, it's okay to ask God to help you make wise financial decisions. That's what He's here for. It's okay to start off with that in mind. Pray for God's guidance. If you find yourself challenged with credit cards, listen, I'm not one of these people that say, Hey, never have a credit card. That's not, you're never going to hear that from me. Credit cards are a tool. Now they can be used in a bad way or they can be used in a positive way. Use them as a tool. If you find that you're one of these people that can't do that, well, then don't have a credit card. Maybe you use a debit card or use something else. Now let's talk about some practical ways to battle those psychological factors of credit card use. We talked about those a few minutes ago, and I just want to give you some more ways to battle against that. The number one thing you can do. And I see this working with clients every day is set clear financial goals, because if you've got specific, if you've got measurable, achievable goals that can help you motivate to spend wisely and avoid those impulse purchases. For example, if you have a goal that you're going to set aside a certain amount of money each week, and then you have that in mind, when you go to spend, you're going to be like, wait a minute, it's an opportunity thing here. If I buy this, I'm not going to get to my savings goal, or I'm not going to get to my down payment goal for that new house. Or maybe there's something you want to save up money for. So start by setting those clear financial goals. Yes, have a budget, but bigger than that, you just have some overall goals. And then every time you go to use that credit card, ask yourself, does this fit in with your goals? Does this fit in with your long term plans? Second thing, like I said, create a budget. A budget is going to help you allocate your income effectively and keeps you accountable for your spending. Because if you've got a budget, that's great. But one of the things you're going to do with that budget is you're going to measure your own success. You're going to say, okay, I expected to spend this much on clothing this month. I expected to spend this month on meals or entertainment or utilities. Well, if you've got a budget and you're tracking your expenses, then you can give yourself little wins and celebrate those wins. I talk about this on the show all the time. Celebrate when you're seeing success, but measure that, adjust that. And if you've got to make adjustments, don't just set the budget. You know, I set a picture the other day. It was like, it's not two stone tablets that you took a hammer and chisel to. Your budget is something that should move with you. It should change because things change. So that's the second thing, create a budget. Number three, now this is going to be sort of a no brainer, but use cash more often. If you pay with cash, we talked about this a few minutes ago. It makes that spending experience more tangible. It reduces that likelihood of overspending because you're physically parting with something. I don't know about you, but when I take cash out of my wallet and I hand it to somebody, man, I'm physically handing them something. I can look at that and I can say, this has value. Not that a credit card doesn't, but it's so easy to just throw that plastic down and just ignore it whereas if I'm paying with cash, I am much more tuned. Hey, listen, my grandparents used to do this. They had cash envelopes, like the envelope system we talk about on the show sometimes. When the cash was gone, they weren't spending any more on that envelope. So that's number three, that's use cash more often. Number four, avoid temptation. One of the great ways it is a pro tip right now, I'm going to give you. Unsubscribe from marketing emails and avoid browsing shopping websites unless you've got a specific need. Have you got something you need to buy? That's great. But unsubscribe to this because, Hey, here's the thing. Vendors are going to send you emails. They want to get you to spend money. Hey, the credit card companies are trying to get you to spend money. You don't need those things. Unsubscribe from those. If you truly need something, then go shop for it. But unless you've got a specific need, don't just go browsing online. It's too simple to just pay for that stuff online and then the money is gone. And do you even need it? So that's number four, avoid temptation. Number five, practice mindfulness. You got to be aware of your emotions. We talked a little bit about this, that impulse of that emotional spending, what takes, you take an inventory of being aware of your emotions, be aware of how they influence your spending decisions. And again, take a moment to reflect before making that purchase. If you're at a jewelry store and you're thinking, Oh, I really like this ring, or I really like these earrings, or I really like this necklace. Be mindful of that. What emotions are you feeling? What void are you trying to fill? Because oftentimes, and trust me, I'm speaking for me right now. There have been many times when I looked at why I was doing that. I was mindful of why I was doing it and it made no sense with my overall financial goals. So that's number five, practice mindfulness. And the last one I'm going to recommend is seek accountability. Listen, accountability is great for everybody. Share those financial goals with a trusted friend or maybe a family member, maybe somebody who's gone through this difficult time of managing their finances. These people can provide you support, they can hold you accountable, especially if you're already struggling with credit card debt. You heard me say this today. When I got out of college, man, my credit was a disaster because I took every single credit card they offered and it just spiraled because then I got one credit card charged up. Well, I needed more money to spend. So I went and got another credit card to pay off that credit card and that credit card paid off that credit card. And it was this vicious cycle of getting yourself in over your head. Now you might be saying, Ralph, that's great. I can do all those things, but I'm in debt right now. What are some immediate things I can do right now to get back on track? Well, I'm going to state the most obvious and you're going to probably laugh if you're listening to me in your car, maybe you're working out or something like that around the house. Stop using your credit cards. This might seem obvious, but it's the first step to getting out of debt. If you're one of these people that can't manage this, take a pair of scissors and destroy that credit card, put it in the shredder, lock it away that you can't get to it. That is the first step. When you go into a hospital, if you're bleeding, the first thing the hospital is going to do is they're going to work to stop the bleeding. I'm going to encourage you to do the same thing. Number two thing. And this one is huge. Make more than the minimum payments, because this is going to help you pay up your debt faster and save money on interest. Here's the thing a lot of people don't understand. If you look at your credit card and if you can find the interest rate, a lot of times this is hidden by the lenders. But if you find that interest rate, whatever that interest rate is, if you make the minimum payments, it's generally going to take you that many years to pay it off. So for example, if you've got a 25 percent interest rate and you're only making the minimum payments, guess what? Truth bomb here, it's going to take you 25 years to pay off that loan. So make more than the minimum payments. Now, number three. Maybe you've gotten to the point where you need to really have somebody sit down with you and do a debt consolidation loan. This can help you simplify your payments and potentially get a lower interest rate. I remember when I was in way over my head, that's what I did. I went to a credit union and I said, listen, I am in way over my head. I had just gotten my first job. I had this income coming in, but man, I have every credit card, it looked like a deck of cards when I took out my credit cards. So I went to the credit union, I said, hey, what can you do to help me? They gave me a debt consolidation loan. I'm gonna be honest with you, they did some tough love for me.   That's why I said you   might  cry a little bit.  They sat there and they say, we need you to close every single one of this credit card accounts.Now, the best part of this dealing with credit union is they gave me a credit card. They gave me a very responsible credit limit. So consider that debt consolidation loan because that can help you simplify your payments and potentially get a lower interest rate. I remember in my particular case that credit union took my credit card interest rates from maybe 20 percent down to about 12. Now 12 is not a great interest rate, but it was sure better than 20 some percent. And the last thing I'm going to recommend here, seek Christian financial counseling. And I say Christian because I think you need to work with somebody who understands your heart, who understands the faith of this and help them to develop a personalized plan for you to get out of debt and to help you manage your finances God's way. You are certainly welcome to reach out to me. I work with clients every day. You can book a call with me by going to askralph.com. And you can, you can do that right there and I will sit down with you. We can do a Zoom call. It doesn't matter where you are and I'll come alongside you. I'll put my arm around you and I'll give you a personalized plan to help you get out of debt. Now, before we move on to some reflection questions, you know I always like to share those. I want to share something from my heart. Listen. I know what it's like to feel weighed down by financial struggles. You've heard me say it today about the credit card debts. I know that stress feels like. Cora, I hear you loud and clear. I know what that shame feels like, and I do know that lonely feeling of thinking you're the only one dealing with it. But I can tell you something, and this is an absolute truth. You are not alone. There are a lot of people who are dealing with these same things. This is why I do this show every day. And here's the beautiful part. You don't have to stay stuck every single day. I'm here to remind you that there's hope. I'm here to remind you there's a way forward. So what I'd love for you to do is join me over at askralphpodcast.com/newsletter. I want you to sign up because every day I'm going to send you a daily dose of encouragement. I'm going to send you some simple practical steps to help you take small steps towards financial freedom and some reminders, and this is a beautiful reminder that no matter where you're starting, I don't care where you're starting. You could be up to your ears in credit card debt. God has a plan for your journey. And here's the best part. When you join, you're not just signing up for a newsletter. I'm not just going to bombard you with spam. You're stepping into a community of people who are just like you, the people who are letting go of that shame there. They're breaking free of that bondage. They're finding hope and they're learning to live in God's freedom one day at a time. I want you to be a part of that. So don't wait. Head over to askralphpodcast.com/newsletter today. Let's do this together. Like I said, you're not alone and I'm here to walk this road with you and I can't wait to see you there. So now let me leave you with three reflection questions to ponder. The first one is this, what are the main factors contributing to your credit card debt and how can you address them today, not tomorrow, not next week. What are those main factors? Really think about this. Reflect on this. What are the main factors that are contributing to your credit card? Is it the easy way to spend? Is it the emotional high you get from it? Are you so far in you can't get out? Start by understanding what those things are. And then decide on how you can address them today. Number two question, how does your credit card debt affect your mental health? Ask yourself, how do you feel about this? How do you feel about being in debt and how does it, how does it affect your ability to save for the future? We talked about this a few minutes ago. If you're spending money on interest, those interest dollars, you're just throwing them away. They're just going away. They're not going for your long term benefit. It completely eliminates your ability to save for the future. And number three, you know I'm all about action. What practical steps can you take today to start managing your credit card debt more effectively? The answer to the question that I started with today is all about what can you do today to manage credit card debt more effectively. Now you might be listening to this and saying, Ralph. I do great with my credit cards. My oldest son, he does great with his credit cards, but you have to examine what practical steps can you take. Now, my oldest son, he pays his credit card bill basically once a week because he loves the perks of it, but he never pays interest. He never pays late fees. Now I want to share a few quick letters from those people who have been helped by the show. I just got a couple of quick ones. This one says, "Ralph, your show has been a lifesaver." We're hearing this a lot. "I was drowning in credit card debt," man, you and a lot of other people. "But your practical advice helped me get back on track. Thank you so much." Well, thank you for listening. I truly appreciate it. And like you said, it's practical advice. I don't give you some pie in the sky things. We talked about very simple, concrete things that you can do today to get yourself back on track. And here's another one. "I've been listening to your show for weeks now, and I've already seen a significant improvement in my financial situation. Keep up the great work. Your show has not only helped me with my financial finances, but also strengthen my faith. Thank you, Ralph, for being a beacon of hope." Well, I must say this to you, you're the one doing the work, but thank you for reaching out because these letters are what keep me going. It's what helps me produce this daily content. And if you've got a story, a story to share, if you've got something you'd like to mention, a win that you had or something you're struggling with, you can simply email me at ralph@askralph.com. It's really that simple. Now tomorrow, we're going to be discussing another important topic. We're going to talk about car dealers using what we call the 4 square method to outfox you. I'm going to tell you all about this, the way they kind of get you into this, this emotional connection with buying a car. So be sure to join me for another insightful discussion. If you know anybody that's looking to buy a new car, maybe you're buying a new car, encourage them to check us out tomorrow. So thank you for joining me today. Remember this. My passion is to help you achieve financial success. I want to see you live out your dreams and I want to see you grow in your faith and I know this together, we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy and may God bless you abundantly.

Podcast Announcer00:30:10

Thank you for joining us on the Ask Ralph show, and with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated. Just Ask Ralph.The information contained in this episode of Ask Ralph is based on data available as of the date of its release. Saggio Accounting Plus and Ask Ralph Media, Inc. Is under no obligation to update this content if changes occur.Applying this information to your specific situation requires careful consideration of all facts and circumstances, and any information provided is not to be considered as financial, tax, or legal advice. Please consult your tax advisor or attorney before acting on any material covered.