A Spooky Spiel About Card-Wielding Doctor Zombies

You've got credit. But do you need those cards? Some physicians aren't certain.

Question:

"My husband and I have a total of five credit cards between the two of us, all with zero balances. Does it make any sense to keep this many accounts open?  I want to cut down to maybe two for simplicity's sake, but am wondering if there is some value in keeping those accounts open, even if we aren't using them?  Is it true that having more credit cards helps our credit score? How many credit cards should we carry?"

Answer:

There is only one reason to keep so many credit cards accounts open: you don't have an Emergency Fund. And if you do have an Emergency Fund, there's no reason to carry more than one card per person.

But why stop there? Why not go all they way to zero?

You can't.

You're a credit card zombie and mad scientists are controlling your thoughts. Here are two tactics keeping you in their grasp"¦

Thought Control Tactic #1: Make doctors hope for rewards.

A five percent discount on restaurants. Saving fifteen cents a gallon of gas. Taking a "free" plane ride. Sounds alluring, doesn't it?

When you read the fine print, you'll see a bunch of do-this-to-get-that language. You may even begin to get a scary feeling in your gut, like someone's trying to control you. I'm not talking about the agreement the guys from H.R. asked you to sign when you went to work for the hospital. I'm talking about your credit card rules disclosure.

It reads like a recipe for a devious mind control experiment, and you might even begin to believe there's an evil corporation out there whose mad scientists have concocted a scheme to rob you of your financial freedom. In fact, you'd be right on the money. Credit card companies actually employ mad scientists. They're called industrial psychologists, and they're the ones who programmed you to seek rewards.

The problem here is that you're so tuned into their trickery that you don't believe me.

Right now, you're telling yourself, "I'm not a big spender. I'm very careful with my money, and I pay off my cards every month. I spend $7,000 per month, not counting my mortgage, and that earns me $840 a year in rewards. I'm way ahead of them."

Not so fast. Can you show me that check from the card company? You know, the one that reads...

Pay to the order of Dr. Credit Zombie: Eight-Hundred and Forty Dollars

Can't find your check? I didn't think so. You're spellbound.

You're not saving one percent of what you spend. Nope. You're not "saving" anything at all"¦ you're spending. And you're not spending one percent more, or five percent more, or twenty-five percent more. On certain purchases, you're spending twice as much as you would if you used cash.

Still don't believe me? I'm not making this stuff up. It came from this study from the M.I.T. Sloan School of Management. Spooky stuff, yes indeed.

Thought Control Tactic #2: Make doctors fear their credit scores.

Are you afraid that cancelling your credit cards will kill your credit score? Of course you are.

The truth is that bringing the guillotine to bear on your credit cards may slightly reduce your credit score, but not kill it altogether. According to the folks at FICO.com, the "Types of Credit Used" category accounts for only ten percent of your credit score. This means your car loans, mortgage, student loans and other borrowing counts in that category too. So more than ninety percent of your score is determined by other factors. For example, paying your bills on time accounts for thirty-five percent of your score, so it's way more important to use credit wisely than it is to have credit cards.

A zombie-like focus on credit score loses sight of the big picture question, "Can you get a loan if you need one?"

You're a physician family, right? You know that bankers will fall all over themselves to lend you money. I've seen young doctors of average creditworthiness get mid-sized six figure loans for doing little more than signing their namesno collateral required. So yes, you can get credit. And your credit score is only a small piece of the decision-making process that bankers use.

Do doctors really need so much credit?

You know the holidays are right around the corner and you'll be buying gifts. You know you're going to take a vacation some place nice. And you know that the car you'll be driving five or ten years from now is not the same one you're driving today. You also know that some day, before you die, you'll have to pay for those things one way or another, so forget about borrowing to buy them. Start saving now, and pay for them with cash.

"Wait a minute," you say. "what about my mortgage? If I need to refinance, I'll need credit for that won't I?"

Yes, you'll need credit. But having cash in the bank, zero balances on most loans, plus equity in your home and a six figure income is more than enough to convince lenders that you're worth the risk. If you can't get a mortgage, nobody can.

An Experiment Gone Horribly Wrong

Here in the United States, it's like we're on the set of Night of the Living Dead. We live with a culture of credit that has turned citizens into consumers, and consumers into credit zombies. I believe we have lost our ability to entertain the thought of first saving money, then spending that money on the things we want and need. No other mindset can explain how a surgeon with a decade of O.R. time under her belt and more than $100,000 in the bank believes she needs to take out a loan to buy a car. And no other thought explains how our country came to be so deeply indebted. The culture of credit is nothing more than a mindset, and you have the power to dispel the curse.

Lucky Seven Steps to Break the Curse of the Credit Card

  1. Get a debit card. Start using it to buy things "with cash" so you won't be using funny money anymore. You can see the impact of your purchase decisions immediately by logging into your bank account, and you'll have tighter control over spending. Learn how to protect your debit card.
  2. Take your cards out of your wallet and stop using them.
  3. Pay off your card debt, if you have a balance.
  4. Build an Emergency Fund. Set aside three to six months worth of living expenses some place safe and leave it there so that you can feel good about not havingor not usingcredit cards.
  5. Get your free credit report at www.annualcreditreport.com, (not freecreditreport.com, which will try to sell you something). Use it to identify all the cards in your name, including the ones you haven't seen in years.
  6. Cancel every credit card account except one. Keep your oldest card account open since it helps preserve the length of your credit history.
  7. Cross your fingers. If you're lucky, the one remaining card issuer will send you a letter a few years from now explaining their decision to cancel the card due to inactivity. I got one of those letters last year. It was awesome.

And now... a brief commercial from Physician Family Financial Advisors"¦

Two five pound bags of candy corn from Costco bought with a debit card... fourteen dollars.

Zany zombie costume kit bought over the internet with a debit card... seventy-three dollars.

Looking like a zombie but feeling like a financially secure physician family... priceless.

In life, there are some things money can't buy. And for everything else, there's a debit card.

Wishing you and your family my best for a safe and happy Halloween.