Found Around the Web: Advice on Credit Cards Out of Touch, but Contains Some Truth
I'll admit it. The shock value of the title made me click and watch. Don't pay your credit cards back? You've got to be kidding. I got lured in by a headline that went against seemingly everything we've been preaching here at VAFinances.
But James Altucher--a popular blogger, speaker and podcaster known for his quirky approach and out of the box ideas--proved both that he has a well-developed knowledge of credit but lacks relatability to the average consumer.
#FATW Snapshot: From BusinessInsider.com
"Podcaster and blogger James Altucher has a better way to get rid of your credit card debt. He thinks credit scores are a scam and you should destroy yours because it's not that important.
Altucher is a bestselling author, entrepreneur, angel investor and former hedge fund manager. His podcast and blog teach the lessons he's learned about money, health, and happiness after having it all, losing it, and getting it back again"
Let me start by saying this: Altucher is dead wrong about your credit score not having a big impact on your life. I've written about that here. His example of himself getting an apartment is anecdotal at best, and misleading at worst. We review hundreds of credit reports every year, and see the impact small changes in FICO's have on your cost of funds. James lives in an apartment in New York, you don't. He doesn't sound like he plans on ever buying a house. You probably do. I could go on, but my point is that his lifestyle doesn't necessarily apply to yours, therefore heeding his advice could be dangerous.
In this video, you'll read in big red letters that your credit score is a scam, and that's not actually something I'm going to debate against. Again, over our careers here we have seen thousands of credit reports and the ease of which credit reporting agencies can ruin your day with misinformation and seemingly no proactivity or responsibility in fixing it has been appalling. So, point Altucher.
And listen, he's probably right about what will happen if you don't pay and that ultimately you can probably get away with it. And if you are truly sitting there at the end of the month with a mortgage payment due, a credit card payment due, and food you need to buy--with only enough money to handle one or two of those responsibilities--then yes, the credit card payment should be the lowest priority. If you're really hurting financially, you have to prioritize, and credit card debt won't be your highest risk, I agree. However, if you can swing it responsibly, making the minimum payment at least will protect your credit score from being too heavily impacted.
This is important because the main point that Altucher gets wrong is in his "Consequences" dissertation. There are consequences, and they aren't as light as he makes out.
He says it's easy to fix; I say it's not.
He says you "might just have to put a little more money down on your house"; That's unlikely.
He says don't worry, you can do this because everyone else won't. Probably true, but should you?
I was raised with a moral propensity to pay back what I borrow. Whether that's from a family member, friend, small business or multi-national corporation that couldn't care less whether I pay them or not, that obligation doesn't change. Is that the best financial decision all the time, if I know I can keep more money for myself and my family by not paying people back and getting away with it--yet I pay them anyway? No, not always. But it's a hard trait to let go of. Maybe I'm old school.
What are YOUR thoughts? Let me know in the comments.