The other day I witnessed one of the biggest traps of using a credit card. I was having lunch at a local diner with some friends and there was a group of people at the next table doing the same. They could have been high school buddies, cohorts at work or workout buddies. 

The bill comes. Well, you knew that would happen. But, what you didn't expect was that the wait person refused to split the bill for all ten people at the table. Fortunately, everyone has cash, but one person. This person who doesn't have cash agrees to pay the entire bill and everyone else pays him. 

So, here's how the scenario plays out in my mind. No, I didn't stalk the person with the credit card. Let's say the bill was $100 for ten people (including tax and tip) and is split evenly. Clarence, the guy with the credit card ends up with $90 cash in his pocket. He feels rich. Okay, let's remember it's lunch time. Clarence goes back to work for the rest of the afternoon.

Clarence's friend, Stanley, calls about 4:30 and wants to meet at 6:00 for a beer. After a couple of beers, the tab comes and Clarence feels pretty good. After all, he now has $90 in his pocket that he didn't have when he left the house that morning. So he altruistically offers to pay the bill, which is $20. 

Upon leaving the bar, Clarence's girlfriend, Beatrice calls and is wondering where he is. He forgot to tell her he made plans to meet Stanley. He now feels guilty, so he stops at the grocery store to pick up some freshly baked brownies and a dozen roses before heading home to Beatrice. After all, chocolate and flowers always work when Beatrice puts him in the dog house. This sets him back about $35. But wait, he now has $70 in his pocket, (the lunch money less the beer money,) so he can use this to pay for the chocolate and roses.

Clarence is left with $35 cash. You can imagine how fast that goes if the first $55 went as fast as it did.

Now let's fast forward a couple of weeks and Clarence's credit card bill arrives. It has a boatload of charges on it, including the $100 lunch with his buddies. His share of the lunch was $10, but is it really is costing him $100 because he frivolously spent the $90 cash he received from his friends. Sure, he got use out of this $90, but may not have spent it so freely if he didn't have it in his pocket.

This is one of the biggest drawbacks I see to credit card use. It's bad enough when people put charges on their credit cards and not account for them in their spending plan. It's even worse when you put a charge on your credit card, get paid back for most of it, or any of it for that matter, and then not account for it.

Be careful of those credit card charges; they will sneak up on you, especially those for which you've been reimbursed.

CategoriesCredit & Debt