Transactors are MoneySense investors. Transactors are detested by credit card companies. Transactors are people like yours truly and my wife today although in the early years of our marriage we did carry some card debt from month to month until we realized how we were hurting ourselves and stopped. After that we only bought things that we could entirely pay off in one credit card cycle. We became transactors. That’s a curse word in much of the credit card industry.
Who are transactors?
They are people who borrow and make the other guy, the big credit card company, pay.
They are smart people who get their credit card bills each month and pay them off in their entirety. Let’s use a sports analogy. They are like a team that plays an error free game and wins. Maybe they didn’t score a lot of runs or points but they still won the game because they never gave away a point or a run.
I want to use a hockey analogy. I am a Boston Bruins fan. In 2011 they won the Stanley Cup yet their offense was just about average. Still. they beat many good teams that had greater fire power and won the championship. They won because they were the ultimate transactors. They rarely gave away a goal. They minimized mistakes. MoneySense people apply these principles to personal finance.
Transactors are smart. They are saving big money over the long term because they don’t put down one percent and finance the rest over years and years. They pay zero percent on their card charges. They are sticking it to the card industry and many executives in the business quietly hate their guts. They take money out of their pockets. They are making the card companies give them short term zero percent interest loans. They are making the card companies pay through the nose and card companies would like to stop using their products.
Credit card company executives detest them. I know because I once worked for a publication that covered the credit card industry. I often spoke to officials of credit card issuers. There are various curse words that card executives privately use when they refer to the hated transactors. I can’t repeat them here because I am an old man of delicate disposition.
So why don’t card companies end the zero percent interest loan? Some would like to do so but there is the problem of competition. There’s lot of it in the card industry. They also need transactors in order to find the suckers, I mean revolvers. Sometimes smart people start doing stupid things and card issuers love when that happens.
“Oh, Those Blankety Blank Transactors!”
Still, from time to time there have been discussions within the credit card industry of ending the transactor bargain; of discontinuing the grace period and assessing interest on a card from the moment a purchase is made. But those discussions seem to get about as far as the average pol once in a while advocating that the government spend less money. He thinks about it for about five seconds. Then he returns to his or her glorious dreams of big government spending and getting relatives, flunkies and political allies on the payroll.
The problem for them but not for you is the card industry eats it young and everyone else that isn’t moving fast. And, if some issuers ended the grace period, others would start screaming that they would never end the grace period. This would be a way of stealing business; that they still wanted all transactors to know their business was welcome.
How much do transactors save? Potentially a boatload of money over a long period. And, like the power of compounding in investing, the sooner one starts, the better.
The Perpetual Debt
Let’s assume one carries $20,000 in credit card debt at 20 percent interest. Over the course of a year that’s $4,000 just in interest on the debt. If you just pay the interest, you still have a $20,000 debt at the end of year. You haven’t touched principal.
And remember, that bill mess is all yours. The government won’t let you take off any of the interest on your taxes as it once did until the late 1980s when the tax code was changed.
Four thousand dollars a year over ten years is $40,000. Over thirty years that‘s $120,000. That’s all because you understood that the people who tell you card debt isn’t so bad aren’t doing you any favors. And by the way, there are other benefits besides the $120,000.
Because you pay off your bills quickly, you have a sterling credit record. Card issuers will rush to give you the best deals—cards with no annual fees and all sorts of goodies. You will get more rebate points, which can translate into bigger cash refunds. You might get a few hundred dollars back in rebate cash. The total savings of all these card practices are huge. They go on and on for the rest of your life as long as you follow these sensible practices.
And maybe beyond your life if you educate others on the virtues of being a transactor. Remember most young people don’t get this kind of education in school or even at home if their parents know little about financial products. Yes, like alcoholism, financial mismanagement can be passed from one generation to another. But with the power of knowledge, you can defeat the card companies; you can break that destructive cycle that keeps so many people in debt for decades.
And here’s another benefit of using a credit card sensibly. When you purchase a house, your banker will look up your credit history. When he sees it, he won’t make a face and say you haven’t got a chance to get a mortgage. Instead, the banker will say you have top credit. The banker will ask you to sit in the best chair and have a cup of coffee. He’ll start acting like a young single man when a super model comes his way. The banker will want to offer you the bank’s products. These products could save you a lot over the long term.
Transactors will also have better mental health and sleep better than many others who live in fear that their creditors are going to seize their assets. That’s because no one will call you at all hours of the day and night to dun you.
And when those late-night tube ads come on for those sleazy solicitors who tell desperate people far behind in their card payments that “bankruptcy is not an end; it is a new beginning,” you’ll be able to dismiss them as the ambulance chasing sleazebags some of them are.
An aside: I wonder how many of those lawyers whooping it up for bankruptcy filings, who seem to think bankruptcy is like a Sunday walk in the park, have had to file for bankruptcy themselves? They’re like pols who lecture you that you must use mass transit but use cars to get around.
Paying your bills means you’ll be able to shake your head when those tube ads pollute the airwaves and know that’s not you. (I’ll have a chapter later on devoted to those fly-by night schemes that can supposedly get you out of credit card hell without actually having to pay back your debts). You’ll know that no one will be calling you in the middle of the night demanding payment.
Here’s $120,000. Do You Want It?
But ultimately, the MoneySense person will save possibly as much as six figures during a lifetime because this person insists on living as a transactor.
There’s a lot of good reasons for these sensible practices, but I can think of one immediately: Isn‘t it difficult enough to earn an extra $120,000 or 120,000 pounds or 120,000 Euros? Why throw this money away?
Do yourself, do your spouse, do your family a big favor: Learn how to spend and use credit cards wisely. And learn how to pay off your bills each month. And mute the tube when those ads for “pre-owned” cars come on.
However, let’s assume that you haven’t followed these principles and you are facing hard choices. You can’t pay your credit card bills. Let’s consider one such choice in the next chapter.