Why would I want to shop at those stores?
Why would this be in my interest?
Why would I want to pay 2% a month (24% a year!) to go buy stuff this month with my credit card?
Unfortunately many people would see that e-mail and immediately plan to go buy stuff sometime that week. The problem is that credit cards and any other form of consumer credit is a drug. As humans we get a little excited and happy every time we have something new. It doesn't require a purchase, but shopping is a very easy way to get new stuff. It is also unfortunate that this happiness is very temporary. Typically from a few seconds to a month. After that it is either consumed or gets put in a pile of other stuff. Eventually we need to buy containers to store our stuff in and find somewhere to put it all. That's probably why the bigger the house, the more stuff we have and the more stuff we have the bigger the house we "need". Since housing is a huge fixed expense, just having a huge collection of stuff - even free stuff - would have a large financial burden. You'd need an extra bedroom and a garage just to store it all.
What about the credit card balance? First of all you will now have to pay it. If you are late on a payment or miss a payment you'll pay a large fee. Additionally you'll be paying 24% each year this month's purchases that you didn't even need.
You'll need to consider the opportunity cost of your consumption. Consumption is a bad word. The cost of the goods you buy plus interest plus the occasional late fee plus storage cost is huge. Say I went out and bought a new wardrobe up to my current $3500 peso limit. Those clothes are not going to generate income. If I already have sufficient clothing it was a waste of money. I could have just bought what I need and could pay off at the end of the month without paying interest. It would be great to have another pair of trousers and a dress shirt, but I don't need to spend more than 900 pesos perhaps less if I go to a store like Walmart or Soriana. I probably won't even buy those. I don't really need to buy a shirt. I could just buy trousers with cash or using credit and pay my card off in full at the end of the month.
Instead of spending $3500, I could spend 400 pesos for what I could really use and assuming I actually had $3100 pesos available, I could invest it in stocks, bonds, or CETES (T-bill equivalent). Supposing that I already have met my savings goal for long term needs, I could put the money in the bank to pay for my vacation!
How can you avoid the consumer credit trap?
- Be aware that banks are not your friends. They want you to owe them money so that you will become a steady source of income for them.
- Be aware that happiness from stuff is only temporary, but its cost is long term in money, interest and fees, and in increased storage and housing.
- Pay yourself first. Set aside money every time you get paid. Some money should be for irregular expenses and some money should be for retirement. The irregular expense money that isn't spent should be put in investments.
- When you see something you like in a store, ask yourself if you really need it and if you have the cash available to pay for it (without taking money from your savings!) Better yet, wait a day or a week before making the purchase. You'll be surprised how often you feel you absolutely need something one day and the next week you no longer want it.
- Don't carry your credit card(s) with you.
- Plan your shopping trips. Make a list of the things you need and stick to it.
- Don't go to shopping centers as social events. Go to parks, go for walks,etc.
- Don't watch television. Those advertisements might make you think you need something.
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