“There is nothing so useless as doing efficiently that which should not be done at all.”  – Peter Drucker

The Power of Management

The late, leadership expert and best- selling author, Dr. Myles Munroe posits in his book, Overcoming Crisis that the principal key of the Kingdom of Heaven is: management.  He further states “The reason we are in trouble is because of mismanagement through greed.”  What’s more, he defines management as “the effective, efficient, correct, and timely use of another person’s property and resources for the purpose for which they were delegated with a view to producing the expected added value.” Now I know that definition of management is a mouthful. However, it makes me shriek when I consider the mismanagement of my credit card and sadly I am not alone. Credit card debt is one of the leading causes of bankruptcy. Therefore, my goal in Part II of this three-part series is to expose some of the hidden fees which come with mismanagement so that I can help you to become a better steward of a credit card, or to eventually surrender the “need” for one.

In Part 1 [Click Part 1 to read if you have not yet read it] I shared three of my shocking discoveries along my credit card journey. These discoveries are as follows:

• Shocking Discovery #1: A Credit Card is A Debt/Loan – A Recurring Debt/Loan
• Shocking Discovery #2: 15 Possible Fees/Penalties!
• Shocking Discovery #3: Raising Your Limit is a Trap/Bait to Fleece You

Now, while the primary focus of this article is on shocking discovery number two – the fees, I will share two more shocking discoveries that are worthy of consideration to avoid credit card insanity.

SHOCKING DISCOVERY #4: The Credit Card Monthly Utility Bill

Once you have a credit card and depending on how many you have, it can become quite burdensome. In fact, if you are only making minimum payments, you have just added a “utility bill” to your list of monthly expenses. You will be having a recurring monthly fee, which if not paid will result in fines, and sadly unlike the electric company, cable company or water commission, credit card companies will not cut your service for non-payment. They will let the charges increase ad infinitum.  In this regard, the Credit Card becomes a strict teacher in the school of discipline.

Having one or more credit cards is an excellent way to be schooled in the art of discipline: the discipline of paying attention and monitoring to your deadlines, and exercising control over your impulses. Trust me, the pain of mismanagement will teach you how to be vigilant like no other teacher!  When deadlines are missed, you are in trouble! And when you fail to keep your spending impulse in check, there will be “hell” to pay in fees: anxiety, depression, insomnia hypertension and the like, and sadly bankruptcy and even suicide in some cases.

SHOCKING DISCOVERY #5: A Credit Card is a Psychological Trap

One of the reasons so many businesses are going cashless is that when you use a card, you do not feel it until the bill comes. When you spend hard cash (paper), it is reported that it activates the pain centre in the brain but paperless transactions like a credit card does not. If you are not careful, you will purchase many little items online and elsewhere and only when the bill comes you feel the pain.  In addition, the use of the card may prevent you from bargaining or negotiating for a lowered price or good deal. After all who negotiates with a computer, card machine or Amazon online?

Hidden Fees Exposed

Now, let’s see in black and white some of the causes of your pain which come through the “hidden” fees. By hidden fees, I mean fees that you did not readily think of when getting the card or fees the credit card sales person never explained to you or highlighted. In many cases, the emphasis is only on two payments: the minimum fee and the annual user fee. Bear in mind that “fees” mean money you are or may be giving to the company, which in many cases does not decrease your principal loan or need to be made any at all. The only way to avoid most of these penalties is to make sure you pay the card in full each month ON TIME and never lose the card. The following is a list of 15 possible credit card fees based on NCB rates and charges in 2016. This information came in a brochure sent to me by NCB in the mail. Pay close attention to the percentages and I will provide a few practical examples of the implications as well. The result will shock you!

I am using my MasterCard as an example. However all the other cards like Classic Keycard, Lovebird Keycard, Gold Keycard, Travel Mastercard etc have the same categories of charges but the amount varies.

1. Primary Joining/Annual Fee – US$90.00
2. Supplementary Annual Fees – US$60.00
3. Replacement Card Fee –US$60.00
4. Annual Interest rate –Unsecured – 18% -21%
5. Annual Interest rate – Secured – 15%
6. Cash Advance Fee at NCB Branch – 10% plus GCT
7. Cash Advance Fee at ABM – 7.3% plus GCT
8. Over Limit Fee – US$69.00
9. Late Payment Fee – US$69.00
10. Returned Cheque – US$65.00
11. Replacement Statement – US$20.00
12. Credit Report [per report]– US$55.00
13. Credit Bureau Fee – J$2105.16
14. Voucher Search/Item Retrieval – per item (at cardholder’s request) – US$25.00
15. Monthly Minimum Payment – 4% of monthly statement balance

SHOCKING PRACTICAL EXAMPLES

Now, tell me the truth! Were you aware of all those possible charges when you signed up for a credit card? I sure was not! Furthermore, do you see the danger of #15? This is exactly where the bank wants you in order to make you a credit card slave!

Note Well: In Jamaica, we do not operate in US dollars and thus each month a Jamaican will be paying a different amount based on the fluctuation of the Jamaican dollar upon conversion. In any event, you lose if your primary currency is not the same as the credit card.

Sam’s Story

User Fee – Sam has a US Dollar MasterCard with a limit of $1000.00. Let’s say Sam has had a credit card for 10 years and only paid the annual user fee. This means Sam either paid the card in full whenever he used it or he never used it. If the user fee remains at $60.00 for 10 years, Sam has given the credit card company US$600 to retain/use the card. It is likely that the cost would have increased in those years as well. What if Sam gave up the card in year three and had an emergency fund of US$1000?  Sam would have saved at least US$420 which he could have invested elsewhere. Now is it really worth it Sam? No wonder Steven Covey says effective people have the habit of starting with the end in mind. I say think long term to win!

Minimum Payments and Other Fees – Now imagine Sam had a medical emergency and maxed out his card, and for some reason resorted to paying only the minimum payments for 10 years. Sam would automatically have been giving the credit card company more money.  4% of 1000 is 40. Now 40×10 = 400.  Now add the annual user fee of $600 for 10 years. In 10 years, Sam would have paid the credit card company at least US$1000 and his credit card principal remains untouched. He still owes them US$1000!

Well, the situation is even more frightening if Sam missed payments, paid the minimum payment late during those years or did any cash advance/withdrawal. His balance would have increased and he would have had to give more money to the bank. I think by now, you get the point. Now is it really worth it Sam?

Are you Sam?

Sadly,  I have been Sam and there are many Sams out there! I hope by now you are seeing the insanity of it all. Now, if you do need to have a credit card, bear in mind the responsibilities and do not become a victim of stupid tax through mismanagement.

Questions to Ponder

Having delineated the above, honestly answer the following questions:

• Do you still want a Credit card?
• If you do have a card, are you only paying minimum payments?
• Do you have credit card regrets?
• Have you been paying your credit card on time?
• Is it worth keeping a credit card?
• Can you really manage this responsibility?
• Is there a better way to do your business without a credit card?

Stay tuned to Part 3 when I will share some tips and tricks to manage the card better or get rid of it. I will also offer some solutions to do life and business without credit cards. I do hope these two articles will help you to avoid credit card insanity. Like, comment and share it with your family, friends, and especially with young people. I want to empower them to get it right early to avoid these pitfalls and accelerate their financial progress in life.