The Rachel Cruze Show - The Ugly Truth About Credit Cards

Episode Date: August 5, 2019

Millions of Americans are being duped by credit card companies every day. And, you guys, I’ve had it! So, in the latest episode of The Rachel Cruze Show, I’m going to expose credit cards for what they really are. You’ll learn: Lies you’ve probably heard about credit cards The truth no one is telling you about credit card points How to buy a house without a credit score Resources: Zander Insurance Financial Peace University What Affects Your Credit Score Article Show Notes Page Learn more about your ad choices. Visit megaphone.fm/adchoices

I mean, I honestly didn't think it was possible to buy a house with no credit. This is a huge lie that we have believed for decades and decades. It was a bit of a process to fund a mortgage company who would work with us. Getting out of debt, doing the amount of riding, like where you sit today, is it worth it? It is worth it. It's always worth it. Hey guys, welcome to another episode of the Rachel Creas Show podcast. So glad that you are here. All right, this episode is going to be one that may step on a few toes.

I'm not going to lie. because we're going to talk all about credit cards. Yes. Okay. Whenever I go around and I'm talking to people or I'm speaking at an event, you know, most things people can kind of get on board with. They're like, oh, yeah, yeah. I understand, you know, having a car payment is stupid.

Like, you know, when you look at the math aspect, I get that. Or, yeah, you shouldn't borrow money from family members because it always ends up going sideways. Like, there's a lot of things when you talk about debt that people nod their head in agreement. and they get, they may not follow through with it, but they understand. Credit cards are one of those things that I always get pushed back on. Because when I tell people that you can live life without a credit card and go as far as say, like, you don't need a credit card to survive, there's so much pushback. It's always, yeah, but Rachel, I have it because I get points or I pay mine off every month.

So I just want to say, starting out this episode, you may find yourself saying, but Rachel, and you know what, that's okay. because here's the deal. The studies I've read, the stats I see, the people that I talk to as I travel, I have gotten to the place in my life where credit cards are not going to help you. They, in fact, harm you. Now, do people have credit cards and pay them off every month? Sure, but that is not the norm. The average family carries a balance of $15,000 on their credit card. And so when I look at this, I'm like, you know what, it's not worth it. Even if you do pay it off every month, you know, I guess I can give you a little clap good for you if that is you.

But I still will not engage in an industry that has bogged people down, that has gone after people that they know cannot pay these payments and these banks and these credit card companies and these stores take these credit cards out as if they're helping people and they're not. They're in fact harming them. So my personal conviction comes in. I am never going to use a credit card because I don't need one. We will talk about all of that in this episode and show you. you how you can live life without a credit card too. But also, I'm like, you know what,

I'm not going to support an industry that is honestly messing so many people up. I'm not going to do it. You play the snakes, you're going to get bit. So I'm not even going there. So I want you to hear a totally different perspective of what life could be like without ever owning a credit card because it is possible and I do believe it is the best way to live. So this whole episode, we're going to do some credit card bashing. I hope you get ready for it. Here is this episode of the Rachel Cruz show. Okay, so I've been doing this job for about a decade now, and one of the questions I always get is,

how do I live life without a credit card? And to me, that just shows the power of how our culture has convinced us of the lie over decades and decades that you have to have a credit card. I mean, think about it. 60 years ago, rarely did anyone have a credit card. And now on average, people carry around four credit cards. Yes, and a lot of people, they sign up for them because they have them for emergencies,

or it's better protected than cash, all the excuses, all the things. Now, listen, on the flip side, though, I'm seeing people, 78% of people living paycheck to paycheck. And a big reason of that is because of debt payments. So something is not adding up. Something is not working. So if you are tired of not having enough money in the bank or worrying about not having enough money to cover an emergency, I want to help you. But the thing about credit cards is that they might make you feel like you're temporarily not living paycheck to paycheck. Maybe you don't even know what it

feels like to pay for groceries or gas with your own money because it goes on a credit card that you'll pay next month. But the truth about breaking the cycle of bad spending habits and building wealth is that credit cards are hurting you. They are not helping you. So today, I'm going to debunk all the reasons you think you need a credit card. And then we're going to break down the reality of the credit card problem in our country today. And this is such a huge topic, you guys. The credit card topic, it's massive. So in this episode, we're going to focus on why you don't need a credit card. And next episode, we're going to talk about how to get out of credit card debt.

So we got a two-power coming up. Get ready. So in this episode, we're going to talk to a couple who bought a house without a credit score. Yep, that's right. No FICO score. That's right. Because a lot of you think you need to get a credit card to build your credit. to buy a house. Well, we're going to debunk that this episode. Yes, we are. All right, but in order to live your life with such a different mindset, thinking, like, how can I live life without a credit card, you have to have a moment when you say, you know what, I'm done. I've had it.

And there are literally millions of people around the country who have had this moment. So, I wanted to share a few of those stories with you today. Okay, before we get to those, I wanted to jump in here and say, I love this next segment because it's not just people. deciding that they're not going to live life without a credit card. These people are deciding that they are going to live life without debt. All kinds of debts. You're going to hear all these stories about couples getting on the same page. People that say, you know what, I've had it with my car loan.

I've had it with my credit card. We're going to do something different. So I hope these stories motivate you with these I've had it moments. The moment I decided to be debt-free, I was sitting at the car dealership, and I had just signed to get a different car. And the monthly payment I saw on that, I was like, I can't afford this. I don't want to have this payment.

And so I had a little breakdown at the garden worship. I couldn't afford where we were staying, and I couldn't afford my car. There was a few months where we relied on, like, a food pantry to get groceries. And I needed to change for my kids. And I really felt like the stakes were high. I had to get this debt eliminated. Looking back, it was just God orchestrated. everything. Little by little, I mean, I was putting away like $10 a week. It's really

motivating just seeing money and getting put in there. I feel beyond blessed. Just like a burden lifted off my shoulders to be able to pay off that debt and be debt free. When we first started dating, I would only have a card for emergencies. And then I had an emergency and swipe the card and then before I knew it, then the cards racked up. I just got tired of like always getting paid, put money in my savings, pay my credit card, and then I'm overdrafted. I'm like, yo, something's not working out here. We were still scared in the beginning to join bank accounts. It's so counterculture. So he was doing his plan, and I was doing my plan, and it was going to take us twice as long to get out of debt. And so we had to get on the same page. We had to.

When we did this together, how powerful is that what our monies can do together? We were able, because of the debt snowball, to pay off his entire credit card. $7,000 in one month gets me emotional. It's a beautiful day, you know? To know that everything is actually good, that we're going to be able to have a baby and literally have financial peace. For most people to do something radical,

you have to have that moment in your life where you said, you know what, I'm done. I've had it. Now, if you're ready to have your own, I've had it moments, and you never want to worry about money again, financial peace university is what you need to do to get started. It has helped over 5 million people start winning with money. And I've put a little sneak peek of the first lesson in the show notes just for you.

And when you begin this journey, you're going to have so many people telling you that it's just not possible to live without debt. And especially without a credit card. Friends are going to tell you that. Family's going to tell you that. Commercials are going to tell you that. But let me give you some truth about credit cards. There are currently 459 million credit cards in circulation today. and only 327 million people living in America.

That's like 132 million extra cards that are not assigned to a person, but they're floating around, but they are assigned to people because the average person carries poor credit cards. 68% of people who use their credit cards said they use it on things that they need, but the most common type of credit card are the ones they sell you at retail stores. Yes, 41% of people have store-specific credit cards. And last I checked, not many emergencies can happen where Jay Krook swoops in and solves your problems. Maybe a fashion emergency, but no other, no other emergency. Store credit cards, actually, you guys, they are the worst you can get.

Their interest rates are nearly double of traditional credit cards. So let's just assume that you accumulate $1,000 of debt on a store credit card. This is actually way lower of a balance than the average American, but it's just a nice round number. I'm going to give you the benefit of the doubt. And let's say you pay two times the minimum payment every month on your balance. For a store credit card with the 25% interest rate, it's going to take you 27 months and cost you $307 in interest to pay off that balance. So let's say you signed up for that credit card when they said, would you like to say 15% on your purchase today?

And you said, yes. And let's assume that you spent that whole $1,000 we talked about earlier when you signed up for that store credit card, which is pretty unlikely, but let's just say you did. That 15% saves you $150, but you end up spending $307 in interest. Guys, let it sink in. It's just math, people. And then you look at the facts that the profits from places like Macy's, Macy's credit cards, make up nearly 40% of their businesses.

And stores like Coles and Macy's, they actually pay their employees for each credit card application they get. It doesn't even matter if the application is approved, but the employees get a commission for just getting someone to sign up for a credit card. And some stores even threaten to take away hours from employees who are not signing up enough people for credit cards. It's a huge problem. And you guys, I know a lot of people who sign up for credit cards with really good intentions. They do it for the points because they think they can pay it off every month. But it's just not the reality. Only 45% of people pay off their credit card balances every month. And there's $784 billion in outstanding credit card debt out there. Majority of half Americans are not paying off their

credit card bill. So the bottom line is, credit cards are not going to help you build wealth. They're actually going to steal it. Because again, I said it earlier at the top of this episode, but it's true. So many people say, well, I'm going to get a credit card to build my credit so that I can buy a house. but you actually don't need a credit score to buy a house. It is possible. So up next, I'm going to talk to a couple who bought a house without a credit score. So check out their story. When we got married, we had a combined total of about $30,000 in debt.

About a year and a half into our marriage, he got offered a job in Nashville. Came here as a contractor. We knew we did not want to buy a house when he was a contractor. See, I wanted to buy a house, but she's like, no, let's just wait. The sticker price on the houses were quite shocking. We had had some financial discussions before we got married. He knew how I felt about debt and credit cards. Financial Peace University was just kind of the final thing that brought him on board.

But Stephen was very skeptical. Very skeptical. He decided that he would try it and just see if it worked, see if this crazy plan worked. And it did. I knew that guy pushes through regardless of what it was. So I was like, all right, let's try this. Shortly after the birth of our first son, we paid off our final debt and became completely debt-free. Then we decided it was time. We just knew it was time. We had outgrown our house.

We lived in a 750-square-foot deplex. I mean, I honestly didn't think it was possible to buy a house with no credit, but by working through the steps, it works out pretty well. It's part of the plan. You know, Dave Ramsey has in his book, step-by-step plan of how to do it. It works. Thanks, Amanda and Stephen, for being. here and sharing your story. I really appreciate it. You're welcome. You're welcome. Yes. Okay. So I want to know, because we're talking about manual underwriting, because a lot of people believe you have to be in debt to get a great credit score to buy a house. And we know that that is not

true. So you guys went through the manual underwriting process to buy a new home. So tell me, first and foremost, what caused you to buy a new home? Why did you go into the home buying process? We were in a very small, tight space, 750 square feet with me, her, and two little boys. Oh, yes. Yes. Yes. Yes. A little bit of craziness. Yes. Some chaos. Yes.

Way too close together. Yes. Yes. So you wanted to kind of upgrade, get some more space. So then you go through the manual underwriting process. So tell me all about that from start to finish. Like, what'd you do? Who'd you contact?

How did it work? It was a bit of a process to find a mortgage company who would work with us. Yeah. The first two mortgage companies I talked to, they told me that they would work with us because I was very upfront with them. I told them, you know, we're debt-free. We've been debt-free for three years. We have a zero-credit score, no credit score.

You know, do you do manual underwriting? Yeah. And they told me yes. Okay, I want to interrupt her right there because she said, you know, we had a zero credit score. We didn't have a credit score. So there is a difference, you guys, between a zero-credit score and an undetermined credit score, okay?

So if you are in the middle of paying off debt and you're checking your credit score, you're probably realizing that your credit score is getting worse, okay? The number will go down because when you just look at how a credit score is calculated, this is how it's calculated, by your payment history, the types of debt that are used, the new type of debt that you're getting, the length of time you've been in debt, and the total debt you have. Debt, debt, debt, debt, debt, debt. It's all about debt. And if you are not going into more debt and you're actually getting out of debt, then that's going to work against you with your credit

score. So your credit score is going to go down. But eventually, close to 12 to 18 months after you are completely debt-free, your credit score is not a zero credit score. It will be an undetermined credit score, meaning that the companies that run your credit report and have your credit score, they do not have enough information on you to give you a credit score. So it is undetermined. So if you are getting out of debt and your credit score is going down and you go to try to buy a house, these mortgage companies will pull up your credit score and you're not going have a great credit score. But while you're getting out of debt, we don't recommend buying a house. So you want to be able to rent until you're debt-free. You have your fully funded emergency fund

under Baby Step 3. And then the Baby Step 3B is to save up for a down payment on a home. At that time, you'll be able to qualify for manual underwriting because when they pull your credit report, your credit score, there is not going to be one there. It will be undetermined, which is okay. It's okay because you're still going to be able to get a mortgage through manual underwriting. But I did just want to make that difference, that clarification that a zero credit score is different than an undetermined credit score. They took my information and ran my credit. Of course, it was no credit score. Yes.

And they called me and said, oh, well, you do in fact have no credit score. It was luckily they don't believe me. I got lying. Exactly. And when we've seen the emails, it's like, well, yeah, we told you this from the beginning. So why would you even try to run it? Right. Right.

Right. And one of them told me to go finance furniture. Oh, interesting. Yes, that if I was desperate enough to buy a house, you know, like that, then I would... That's what we'd have to do is... Yeah, go into debt. Wow. Yes.

Wow. And you said, well, not us. Yes. That was not an option. Not Amanda Stevens. That's right. The other one told me to get a credit card, find something that I order every month, such as pet food. Yes.

And just... Build up a credit score that way. Yes. So it took three. So your third one. Yeah. And so I called Churchill. Yes.

I knew that they advertised with Day Ramsey. I love it. So they worked with you? Yeah. So I called them and they worked with us. It was a wonderful process. I think that's such a great point because we, on the show, we're talking about sometimes living without debt.

There's some inconveniences, right? Like there's some things like rental car companies, not all of them. We'll rent you a car if you don't have a credit card. Some of them will, if you have a debit card. So there's just things you have to kind of work around, and this possibly being one of them. To do manual underwriting, it takes a little bit more effort. It's not the shoe in of like, oh, yeah, here's my great credit score and anyone will take me. No, some of them may not understand.

And so it takes some calls and a little bit of the inconvenience. But how worth the inconvenience versus having to pay for furniture, right, that you went and got into debt for for this new house. So, like, I think it's a great example, though, that it is still possible. It is so great. And so all this whole process for you all, you got out of debt, you know, you worked the plan. I want to know, like, did your friends and family know you guys were doing all of this? They didn't. They thought we were crazy.

They're like, this is not going to happen. Seriously. Definitely. Yes. So you had some naysayers to say that it's not possible. There's always naysayers. Absolutely, absolutely. Looking back now over your story, would you say this whole journey has been worth it?

That getting out of debt, doing the man underwriting, like, where are you set today, is it worth it? Yes. Definitely. It's always worth it. Do it and it continue to pursue. Yeah. And kind of like, my husband was at first, just try it. And I promise it'll work for you.

Yes. So you weren't the one fully on board then. Oh, I wasn't. No, she was. Okay, so I told me about that. How'd you get on board? She convinced me. She was just like, hey, well, let's try this.

And I was like, I don't think it's a, I don't think so. But I was like, okay, we're going to try it. And it's like, if it fails, I could always fall back on this one. Sure. Sounds good to us. And that's what we didn't. Yes. So what made you think that maybe it wouldn't work,

getting out of debt and living a debt-free life? It sounded like it was a crazy idea. Like, the way that everybody pushes everything, it's like, hey, you have to have this and you have to have that, and you have to have a good credit score to get everything, and then you don't. Yep. So great.

So good. Well, you guys are awesome. Work the plan. You're a living testimony to the fact that you can live life without debt, without credit cards, still get a mortgage, because it's the one type of debt we won't yell at you for. Remember that? And you can do all of that.

Again, living debt-free. So that's awesome, you guys. Thank you so, so much for coming on and sharing your story. Thank you for having us. I love their story because here's the thing. I've heard countless stories just like theirs. I mean, they are proof that you do not have to go sign up for a credit card, build your credit to get a mortgage. No, no, no. You can actually get a mortgage without a credit score. And here's also what I love. Amanda emailed our team after this interview, She said, I just want to re-emphasize a few things to you guys. So here's her email, which I love. She said, you do not have to make six figures to save up for a down payment and qualify

for manual underwriting. We don't make a lot of money. We're basically a single income family. As I work from home just a few hours and stay home with children, I think a lot of people are discouraged because they feel like they don't make enough money to do something like this, as if there's no other option than to pay 100% cash or that they'll never be able to save up a large enough down payment. you just have to work the plan and stick with it.

And then she went on to say, I believe another misconception is that you will not qualify for a conventional mortgage or a high enough mortgage to buy a nice home. She said, our home that we actually bought was the third house we looked at that day, and it was moving ready, no work needed in a beautiful neighborhood, beautiful yard, and double the square footage of our previous home. I just want to emphasize that we were able to save up a good down payment

and qualify for a good mortgage using manual underwriting despite not having a large income and having no credit score, and that we were able to easily find a nice home and a move-in-ready, nice neighborhood. Amen. Preach it, Amanda, preach it. So they are proof you can get a great house using manual underwriting. All right, coming up next,

we're going to talk about a few lies that you've been told about credit cards. Now, here are some reasons that a lot of people think that they need a credit card and what entices them to sign up for the credit card. But I want to debunk some of them. of these perks for you. All right, travel perks. This is a huge one right now. It's really popular. Even earlier this year, our particular airline offered free flights for the companion of your choice to accompany you on any flight that you book if you sign up with their credit card. But listen, the terms were that you had to spend $4,000 within three months. So by the time everything was

totaled up, processed, and added to your account, you were rushed to spend $4,000 for how to half of the year to get a buy one, get one free flight. But the average price of a ticket was $151, which means you would have to take 27 flights by the end of the year to break even. Now, if you have the T-I-M-E to do that, I'll switch with you. Who has time? You don't's got time for that. And in fact, there are 20 trillion unused airline miles. Now, the reward points, but I get points. Okay, this is another one I hear all the time because I think credit. cards are helping them out. But you guys, 31% of people don't even use their points. And when you do, you still have to pay taxes and fees on your purchase. So all of a sudden, that free purchase

isn't free anymore. Another one is cashback. All right, guys, this is just not a very smart one. Let's just look at the math. If you get 1% cash back, which is what most cards offer, and you spend $300 on your credit card, you get $3 back. Okay, not a great deal, especially since studies show that people spend up to a hundred percent more using a card versus cash. So it's not really cash back because it would be cash that you wouldn't be spending if you didn't have that credit card. We got to think, people. We got to think. All right, fraud protection. I've never understood this one. If you do some research and you know, a debit card is just as safe as a credit card, I promise. Also up is the Build Your Credit Myth. All right, this is a huge

lie that we have believed for decades and decades. People are worshiping. at the idea of their credit score. Okay, your credit score is not an indicator of wealth. You literally could inherit a million dollars, like right the second from Aunt Ira in Idaho. And your credit score wouldn't change one point, okay? So it's not an indication that you're winning with money. It's an I love debt score.

And your FICO score has absolutely nothing to do. Again, with how much money you have, no. So do not open up a credit card to help you build your credit. Because the main reason you have a credit score is to, get you into more debt. And we've already talked about you can buy a house without a credit score. The one type of debt that I'm not mad at you for. Okay, but the FICO score, the credit score can be really complicated. So I put a link in the show notes to tell you more about that if you want to check it out. Now, some of you might be thinking, but what about renting a car, renting an apartment,

getting a hotel room? Listen, you can do all of those things with a debit card. Now, are there some inconveniences with that? Yes, there will be some rental car companies you cannot rent from, but there are rental car companies that will rent it for you, okay? So there are some inconveniences. But if you think about it, conveniences in life, just making it convenient ends up costing you more in the long run. Like, think about fast food. Love me some fast food right now.

But is it convenient? Yeah, it's really convenient. But it's not like the best thing for you, right? Convenient stores, they always jack up their prices because it's just easy to run in and out. It's always more expensive than going to like a bigger store, right? So like conveniences are going to cost. you. So here's the deal about credit cards, you guys. Do some people get all the points and you flew to

Europe for free. You pay yours off every month. Are there people like that that do it? Yeah, there are. But majority of people, like we just explained this episode, are not doing it. So it's not worth it. It's not worth it. If you play with snakes, you're going to get bit. I'm telling you, spend your money. Do not depend on the bank. Don't play their little games. You need to get out of debt. You need to get out of debt. do you need an emergency fund and you need to start building your retirement and investing. That's how you're going to win in the long run. I'm telling you. Man, passionate Rachel just coming out on the retrocrues show.

Okay, I know this was so much information in the show. So everything that we talked about, you can go to the show notes. We will have links to everything there. And again, I'm breaking this topic of credit cards up into two different episodes. So this episode was all about how to live life without a credit card. next episode is how to get out of credit card debt and actually how to get out of debt all together. So make sure that you are subscribed to the podcast so you don't miss next episode. All right, this was so fun.

I hope you enjoyed it. And I can't wait to continue to dive in on this topic. And remember, to take control of your money and create a life you love. So if you guys enjoyed this podcast, we have more from the Ramsey Network, like the Ken Coleman Show. According to a recent Gallup poll, nearly 70% of Americans are disengaged at work. If you dread going into work every Monday morning and you're just trying to make it to the weekend, the Ken Coleman show is for you. Everyone has a sweet spot.

Your sweet spot is at the intersection of your greatest talent and greatest passion. We will help you discover what it is you were born to do, and then we'll help you create a plan to make your dream job a reality. You matter, and you have what it takes. takes join the conversation on the Ken Coleman show to hear full episodes just search Ken colman wherever you listen to podcasts or go to ken coleman's show.com