When Fools Were fools
Those Dreaded Credit Cards

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September 28, 1999

Sure we all work for The Motley Fool. We live, breathe, eat, and sleep Foolishness day in and day out. But that doesn't mean we're always this way. You see, at some point in life, every Fool is a fool. It's human nature. We make mistakes. But the one good thing about making mistakes is that we can learn from them. And that's what the "When Fools Were fools" series is all about -- learning from our mistakes.

In this series, brave Fool employees volunteer to share their most unFoolish experiences. The most frequent theme? No big surprise, really -- the dreaded credit card. It seems more than a few Fools have used them and abused them. Hopefully, reading about these experiences will help you avoid making the same mistakes.

Don Benack, TechDome
"My junior year of college I decided that for one semester I didn't want to work an outside job and I would just focus on my studies. But where to get money for rent and food? Then I remembered two unused credit cards with low introductory (6% or so) rates. I maxed out both cards, drove myself into $6,000 worth of debt and, to my surprise, found that after 12 months those low rates jump to 18% rates. I continued my foolish experience by paying only the minimum balance on those cards for the next two and a half years, in the dark as to why my balance never seemed to diminish despite the fact it was abundantly obvious. I just recently paid off the cards, thanks primarily to advice given to me by... you guessed it, the Motley Fool's 13 Steps to Investing Foolishly, especially Step 2, and the wisdom contained in it should be required reading for every man, woman, and child in the world."

Bill Mann, Editorial
"The year I got to college I applied for -- and received -- not one, not two, but three credit cards. No matter that I had no income. I figured I could balance my payments by cycling one card to the other and so on until I got home over break and had enough time to work to pay them off. Well, this type of creative financing only works if you get to a point where you stop using the credit cards, which I did not. Within four months I had three maxed out credit cards and no money for the trivialities of life, like food. I cut up the cards, and it took me about two years to pay them all off. I didn't carry another credit card at all until I had been out of school for five years, when I was certain that I had both the income and mindset to keep out of debt. To this day I pay off my card each month."

Scott Shrum, Business Development
"A couple of years ago I was carrying about a $1,000 balance on one of my three credit cards, all of which offered some sort of rewards or cash-back incentives. One day, in a fit of foolishness, I devised a scheme in which I'd use convenience checks to continually cycle my balance from one card to the next, month after month. I figured that by constantly moving the money around I'd not only rack up points from every card, but also avoid finance charges. Well, this was before I was Foolish, and I hadn't read the fine print that came with those convenience checks. I immediately got blindsided by a cash advance fee that was way more than I'd ever earn in incentives. Ouch! Served me right. Needless to say, I got Foolish very quickly and haven't carried a credit card balance since."

Sarah Williams, Foolabs
"I got out of college relatively debt free. My first job paid slightly more than minimum wage. What's the first thing I do with my new-found job and freedom? I run up $3,000 on my credit card buying housewares and other stuff. Since my paycheck basically only covered my rent, food, and a movie or two, I started compounding interest quickly -- at 18.5%, to boot!

I quit my job and was lucky enough to land a higher-paying job with the Fool. I renegotiated my credit card down to 12.5%, but the bank wouldn't go lower. So I transferred my remaining balance to a card that gave me 2.9% on transferred balances and 9.9% fixed rate after six months. I didn't cut up the old card. I said, "I'm smart, I won't fall into that trap." Guess what? I fell in. I used it once to buy a plane ticket home to see my mom and dad. Pretty soon I was back up to $1000 and still at the icky interest rate.

So, that's where I am today. Eighteen months out of college, two cards, both carrying balances. I'm still in debt, but I'm using the snowball method to pay it off. When I finish paying them off, I'm going to cut them both up, and live off of my debit card forever."

David Forrest, Operations
"There I was, the third week into my freshman year at Providence College, bright-eyed and bushy-tailed in the student union. It was then that I noticed her across the room, sitting down under one of those huge credit card banners, scribbling madly. I thought to myself, "I'm a college man now. I'm brave. I'll go sit down next to her, act all cool, and get me a date!" I strolled over (really cool-like), sat down next to her, and started filling out the same form she was filling out for a Citibank student Visa credit card. Heck, not only was I gonna talk to a cute girl, but I was also going to have a ton o' money to lavish her with presents and beer, right? Long story short, we went out on a few dates, and then she discovered that we had hockey players at our college. Me? I was left with a 22% Visa from Citibank maxed out. How incredibly foolish. She sure was cute, though!"

Jen Silber, Editorial
"I don't have an 'emergency fund.' When I started working, spare cash went to paying credit card debt and building up my savings. I later closed the savings account to pay the credit cards. But even when I've been debt-free, I haven't had extra after paying my bills. I know I should have a stash of ready cash (three months' expenses is the guideline), but I keep telling myself that good credit is good enough. Good credit has been handy in emergencies -- but then I'm back in debt again. And if I were to end up jobless (heaven forfend), I'd be out of luck.

I think the way to solve this, and to avoid ending up in this situation, is to follow a budget. It may feel silly to keep drugstore receipts and compare them to a monthly list, but I suspect the security of savings is worth it."

Chris Hill, Media Relations
"In late 1991, I had a credit card with a $500 limit. The holidays were coming up. I was short on cash and had already maxed out the card. So, I timidly called the company in the hopes that I could convince them to somehow, possibly, maybe, please extend my credit limit to $750. Imagine my surprise when they said they would raise it to $1500. WOO-HOO!!!

Took me three years to get out of debt. Maybe if the Fool's School had been around back then I'd have been out sooner."

How can you avoid these pitfalls? What should you do if you've already fallen into the dreaded credit-card trap? Don't wait another minute. Run, don't walk. Visit our comprehensive area on debt and credit cards located in our Personal Finance area.