The Banks Always Win: How Credit Cards Can Trap You (And How to Break Free)

Let's talk about something we all think we understand, but often gets the better of us: credit cards. We get them with the best intentions, right? "I'll use it for emergencies," or "I'll build my credit score." you say to yourself. But here's the thing – the house, in this case, the banks, have a pretty good idea of how the game plays out.

When playing with the House’s Money then the House Always Wins.. In this blog post I am going to share with you why this happens and how to prevent yourself from being another debt trapped slave of the banking system… Let's go..

The Illusion of Control

Think back to when you first got approved. That shiny card, the promise of extra spending power. It feels good, doesn't it? You're responsible, you're disciplined. You've got this. But let's be real, life throws curve-balls.

I Remember back in 2015, I had a R10,000 gold credit card from FNB. At first, I was golden. I used it wisely, paid it off every month. As my income grew, I increased my credit limit. I eventually had a R30 000 credit limit on a Private Client credit card. I was so excited for my Slow Lounge visits and extra ebucks. Then, BAM! Financial hiccups. Unexpected expenses. Suddenly, the card became my "emergency card” , the solution to everything. Yes, I was earning a great income but had no financial discipline so had not put aside money for emergencies, heck, the internet had not made the term “emergency fund” popular. These really were the Zuma Days haha.😅

and by emergency, I mean December had happened to me or rather I happened to December. I spent the money in the credit card recklessly. I got a new fancy bicycle, some gadgets, traveled and ate a lot of food. I can never really tell you exactly where that money went, including my salary. I think Mango and Khulula got a good chunk of it, the irony considering that they too squandered it and are not around today lol (for the young ones, Mango and Khulula were airlines in South Africa, very popular back in 2015/2016)

The Slippery Slope

And that's exactly what the banks are counting on. They know that at some point, life will test your financial resolve. Maybe it's a job loss, a medical emergency, or just a string of bad luck or you just being stupid. Whatever it is, that credit card becomes a lifeline. But here's the catch: it's a lifeline with a hefty price tag.

Suddenly, you're not paying off the balance. You're just making the minimum payments, and the interest starts to pile up. You're using your credit card to buy groceries, fill up your tank, pay bills – things that should be covered by your income. You're mixing your income and credit, and that's a recipe for disaster.

The Debt Cycle Trap

Years go by, and you're still chipping away at that debt. It feels like you're running on a treadmill, going nowhere. The house has won. They've turned a small credit limit into a long-term revenue stream, thanks to your hard-earned interest payments. FNB found itself in a very good position in my case, they turned a R30 000 credit limit into R26 000 earned income from interest I was charged. [The account balance was negative R56 000 by the time I started paying it off, this was money I owed them] (lol Good times). But how did this happen?

The Math Is Against Us (including you)

Let's be honest, the statistics are stacked against us. Banks know that most people will eventually face financial difficulties. They've built their business model around it. It's not about being evil, it's just business. But that doesn't mean we have to be victims. The bank knew at some point that I would get into financial trouble and turn to my credit card for assistance, thus starting a vicious cycle where I end up paying interest and crazy fees for the assistance. (I think I should start a business like this yazi 🤔)

Breaking Free: Rules of Engagement

So, how do we flip the script? How do we use credit cards without falling into the trap?

I have developed rules that have worked for me for the past couple of years. I learned these rules through painful yet insightful experiences. Here are my golden rules:

Never Mix Income and Credit: Your income should cover your expenses. Your credit card is not an extension of your paycheck. Do not even think of it as such.
Strict Credit Card Budgeting: Decide exactly what you'll use your credit card for (emergencies, specific purchases) and stick to it. My rule is to only use my credit card for things that will make me money. Eg: I get invited to speak in Cape Town, flights cost R3000, I pay with my credit card and charge R7000 to deliver a workshop, I profit R4000 and pay R3000 back to the credit card. Basically, money never leaves my credit card without me knowing how it is going to return first.
Pay It Off Every Month: If you can't pay the full balance, you can't afford it. Period.
Emergency Fund First: Before relying on credit, build a solid emergency fund. This will cushion you from life's unexpected blows. You should have an emergency fund that covers sudden emergencies and an emergency fund that covers living expenses for at least 6 months (or the average period it takes to get a new job in your profession). It takes time to build this but is important or suffer for not having one when the inevitable troubles of life hit you.
Be Wary of Overdrafts: They function very much like credit cards, and have the same pitfalls.
Educate Yourself: Constantly learning and improving your financial literacy is your best defense. So learn the game and play it. Credit cards are not bad, they are great tools but a lack of wisdom can lead to disaster.

The Takeaway

Remember, the house always wins – unless you change the rules of the game. By being mindful and disciplined, you can keep your credit card in check and avoid the debt cycle that so many South Africans live under. It is your choice to make a Bank your best friend or worst enemy. These days FNB and I are friends, I recently did a promotion campaign for them too haha.. but once upon a time, I did think of driving a car into a branch..but that’s a story for another day.😂

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Happy Investing

-Omega

Remember: Opinions expressed in this article do not and never will constitute financial advice. Every person's financial situation is different, I recommend you speak to a financial adviser about yours