Cut Up Your Credit Card

Robert Kiyosaki, in his 22 Jan 2007 Yahoo Finance column, wrote about his take on the classic credit card debt problem.

In the real world, credit cards are essential. It would be extremely difficult to rent a car or make hotel and airline reservations without a credit card. It would also be tough to pick up the tab at a business lunch or shop online without a credit card.

Personally, I love my credit cards because of the financial freedom they allow me, and my life would come to a grinding halt without them.

But their problem isn’t credit cards — it’s a lack of financial know-how. And at the root of that lack of knowledge is our school system and its archaic curriculum, which is out of touch with the way people really live.

Clearly, advising people to cut up their credit cards won’t solve the problem of excessive credit card debt. A pair of scissors won’t make anyone financially smarter, but some financial education just might.

And I have to say that I agreed with Robert Kiyosaki on this point totally.  The root of the problem is the people holding the credit card, and not the credit card.  The credit card is just a tool; it’s the person who made use of the tool that makes the difference. 

Credit card debt is a serious problem because people use it on the wrong thing.  They used it to supplement purchases of non-asset or what Robert Kiyosaki called as doodads, and sometimes liability!

If you have the adequate financial knowledge about credit card interest rates and the financial know-how of doing investment, you can judge if the loan from the credit card company can be better put into some investment which will return high rates. 

If you understand the concept of what Robert Kiyosaki mentioned as using “other people’s money” (OPM), you will realize the power of leveraging money of others (in this case, leveraging on credit card loan) and letting money to work for you. 

It all voice down to whether you have the financial literacy to understand all these.  Cutting up the credit cards seems to be the last desperate and uneffective resort for the financially illiterate.