This week's gong show isn't a dubious financial product but rather a dubious financial behaviour. The financial behaviour of carrying a balance with a credit card company is sure to cost a lot of money, make the user poorer, make the credit card company shareholders richer, and increase unnecessary consumption.
Paying for things with a credit card isn't bad in itself. It is one of many ways to conduct financial transactions and a very convenient one at that. Using a credit card for necessary purchases and collecting points or getting cash back is actually a very smart financial behaviour provided the user pays the credit card balance in full every single month. This is where most people get into trouble, they don't have the cash to pay the balance in full when their bill arrives. Those stainless steel appliances lose their lustre quickly when you have been paying interest at 17% for two years after you bought them on that shiny new Visa card.
Lets play with that scenario for a moment. Your dishwasher broke, now you need to buy a new one. You have the cash and can afford the $500 for a nice new dishwasher that will work just dandy but your at the store and that set of stainless steel appliances really catches your eye. The salesperson does a great job at persuading you to buy the new set and you are convinced that your life will be 10 times better with these shiny new marvels of modern technology. You plunk down the Visa and $5000 later you walk out of the store convinced you have done the right thing. Remember now that you could only afford to pay $500 but you paid $5000. Its 4 weeks later and now the bill arrives with a balance of $5000 and you only have $500. You wake up at this point and think, "Wow, how am I going to pay this off." then you look over at your appliances and think, "It was worth it. I will pay it off later." and you pay $500.
The fun really starts at this point and this is when the credit card company starts salivating at the prospect of you paying off those appliances for the next 3 - 4 years. If you were diligent and paid $160 per month for 3 years and managed not to buy anything else impulsively you would have paid $1277 in interest plus the $5000 in principal. That sale price on the appliances isn't so attractive now that you have added 25% to the total cost.
The big problem for most people is that they never actually pay off their purchases and they end up 10 years later still paying interest on the appliances they bought and have long since lost the showroom lustre. This is because two years into the plan they broke down and convinced themselves that they deserved a vacation and put that onto their card and two years after that the car's transmission needed replacing and so on and so on. It never ends unless you get real disciplined, buckle down and stop spending. Pay off that credit card balance as soon as possible. Go without things until you do. Reward yourself only after you have fully paid off the card and saved up for a new purchase.
Good old fashioned common sense will go a long way. Refuse to pay interest on consumable items and depreciating assets except as a last resort. You will be the one rewarded in the long run.