In America, debt welchers are admired, and that’s a problem. Let me explain how adopting an attitude of not paying back your debt will lead you to less wealth and more unhappiness.

I’ve always grown up believing that taking on too much debt is a bad thing. What’s even worse is taking on debt and not paying back your lender. Whether the lender is an institution or a relative, paying back money lent you in good faith is an absolute must. They trusted you. Not paying them back is not only selfish, but highly dishonorable.

But when the worst punishment given to people who break their debt promises is a bad credit score or a garnishment of wages by the IRS, it’s not surprising that not paying off debt is becoming as common as spanakopita. Do garnished wages even count as punishment, since you’re simply paying back what’s owed? We’ve already discussed how a good credit score doesn’t really matter very much anymore!

People Who Pay Their Debt Are Fools

The more I think about it, the more it seems like people who keep on paying their debts during bad times are fools. Deep down, I think all of us who keep on paying our mortgages, student loans, and credit cards when we’re hurting for money know we are being silly since there are so many bailout programs available for those who don’t.

When my Lake Tahoe property got crushed during the financial crisis, the smart economic thing to do would have been to stop paying my mortgage. California is a non-recourse state where lenders can’t come after your other assets to be made whole if you default on your primary residence. They can if you default on a rental or vacation property. Throwing good money after a bad investment is generally not a good thing to do. But I feared humiliation.

Instead of letting my property go, I sank another $100,000 in mortgage payments over the next three years until the storm finally passed. Luckily, out of the blue, I was able to get a loan modification to help with the expense. Otherwise I would have spent even more. Today, I still own the vacation property.

Why Are Debt Welchers Admired?

The reason why debt welchers are admired is because they have the GUTS to say F&*# Y*$ to their lenders and not give a crap about what other people think of them. I’m sure every one of us who owes money has thought about not paying back our debt, especially when money becomes tight.

But most of us are too chicken shit to actually stop returning all forms of communication with our lenders. We’re too worried about our reputations, our careers, and our safety. Who wants to be in fear of opening the door one evening to a debt collector with a baseball bat?

Nobody rewards people who do what they are supposed to do. That’s like giving a trophy to someone who shows up for work on a Monday and Friday. What gets rewarded is doing what you’re not supposed to do, like not paying back your college loan or strategically defaulting on your mortgage.

I’ll prove to you why having poor financial habits are actually admired with several examples below.

People Default On Student Loans Because They Can

If it was so bad to default on your student loan, the New York Times wouldn’t publish an editorial on why those with student debt should default without a balanced rebuttal.

Lee Siegel, the writer encourages people to default because he wasn’t born wealthy. He writes,

“I have found, after some decades on this earth, that the road to character is often paved with family money and family connections, not to mention 14 percent effective tax rates on seven-figure incomes.”

Lee’s other reason for encouraging people to default on their student loans is because other people are defaulting or committing financial crimes.  

“Tax fraud, insider trading, almost criminal nepotism — these won’t knock you off the straight and narrow. But if you’re poor and miss a child-support payment, or if you’re middle class and default on your student loans, then God help you.”

There’s over $1 trillion in student loan debt outstanding, a level much larger than the amount of credit card debt owed by consumption-loving Americans. Plenty of people owe student debt, which is why plenty of people are rooting for Lee’s message! We want student loan forgiveness, and we want it now!

The New York Times, one of the most venerable media institutions in the world, is implicitly supporting student loan defaults by running this editorial without responding with a well thought out counter argument. Is this not financial irresponsibility given the next financial crisis will likely be the result of student loan debt defaults? Guess not.

Strategic Mortgage Defaulting

Carl Richards, a certified financial planner and writer for The New York Times strategically defaulted on his mortgage when he owed $200,000 more than what his home was worth in 2010. He could have kept paying the mortgage like his friends did, but he chose to let the rest of us pay his mortgage instead.

The public likes to blame banks for the housing crisis. Oh those evil banks who provided capital for thousands of people to live the American dream. What happened to blaming the people who decided not to pay their mortgages instead? If everybody paid their mortgages, there wouldn’t have been a financial crisis.

If defaulting on your mortgage was bad, why would Richards still be paid by the New York Times as a columnist, a job that very few people can get? If defaulting on your mortgage is seen as a poor financial move, why is Richards making money from a couple books he published about how to be smart about your money?

Clearly the publisher sees an opportunity and recognizes that debt welchers are an asset. Finally, if defaulting on your mortgage is so bad, why would he be invited to be a keynote speaker at a conference?

The rational answer is that defaulting on your mortgage is not considered bad. Defaulting on your mortgage can give you a unique story as a CFP who is supposed to know what he is doing with his money.

People love a good story. The key is to hang a lantern on your problems and profit from your mistakes. Even if you end up making millions after strategically defaulting, you still don’t have to pay the debt back.

Related: The Average 30-Year Fixed Mortgage Is At A Record Low

Bad Money Management Can Make You A Presidential Candidate

Sen. Marco Rubio, R-Fla is a star on the rise despite his poor money habits.

The New York Times reports,

“An analysis of his financial disclosures by Jude Boudreaux, a longtime financial planner and an adjunct professor at Loyola University New Orleans teaching personal finance, shows that Mr. Rubio earned $2.38 million from 1998 to 2008 but ended up with an estimated net worth of $53,000 (slightly more than Mr. Rubio disclosed himself). His savings rate during that period was about 2 percent.”

So where did all that money go? Well, he bought a $80,000 boat despite owing $150,000 in student loan debt and $30,000 in credit card debt. He then leased a $50,000 2015 Audi Q7, despite disclosing he had liquidated $68,000 in his pre-tax retirement account, which cost him an estimated $24,000 in taxes and penalties.

Then it was reported by the New York Times that Rubio used a Republican Party credit card for personal expenses –to cover a trip for a family reunion and to pay for stone pavers at his home in Miami. Bad money management is one thing, but using Party funds for personal use is a no-no, especially for elected officials.

It’s OK to be bad at managing money. If it weren’t, then Senator Rubio wouldn’t be Senator, and he wouldn’t be a candidate for POTUS. We know about the temptations of credit cards and buying things we can’t afford. Nobody is really going to fault you for poor financial decisions. We’ve ALL made them, most certainly including myself. The key is to just learn from our mistakes and move on.

Learning from our financial mistakes is exactly what Marco Rubio is doing. My only advice to him is to drive a less expensive car, because since he’s still in so much debt, the media will attack him relentlessly for all his toys.

Related: How Stock Markets Perform By President

Debt Welching Is Rational

If welching on debt was frowned upon, there would be greater punishment than simply getting a bad credit score or having your future wages garnished. The level of debt welching would drastically decline if we had a system where each finger would get chopped off after being more than 90 days late.

Instead, debt welchers are seen as heroes because they do what most of us dare not do, break our promises. Getting someone else to pay for our mistakes, and allowing us to reap the benefits when things go right is one of the smartest ways to build wealth if you can get away with it.

Everybody will screw up their finances at some point in their lives. And no matter how bad we screw up, there’s always forgiveness if we stay humble and try not to repeat our mistakes. We are OK with bailing each other out at least once, because we might need our own bailout some time in the future.

Related: Ranking Debt Types From Worst To Best

Recommendations For Debtors

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After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Updated for the new decade.

Here are the best credit cards today if you are looking for an awesome rewards credit card. There are so many great offers, so how do you decide which ones to get? Let’s how many credit cards you should have until it’s too late.

One day I was having lunch with a buddy of mine when he whipped out his foot long man wallet to pay the bill. “Whoah!” I said. “Where do you keep that thing?”

“In my man bag, of course!” he replied with pride. Todd lifted up his soft leather Bally bag that probably cost a thousand dollars. “Have a touch,” he said as he tossed it over. Todd’s bag was as supple as a baby’s bum.

The reason why Todd’s wallet is so big is because he has 10 credit cards all nicely color coordinated from top to bottom. The most prestigious cards – the black ones of course – were at the top. But as I looked closer at his collection, every one of his said “Preferred,” “Platinum” or “Elite.”

Temptations To Get A Lot Of Credit Cards

One could call Todd a credit card connoisseur. “I’ve got a card for every purpose,” told mentioned proudly. “Never leave home unprepared!”

Despite what is probably hundreds of thousands in credit at his disposal, Todd still rents a one bedroom apartment and has less than $80,000 his 401(k) at 35 years old because he’s spending all his money!

In fact, he admitted to having around $18,000 in revolving credit card debt spread across seven accounts. At least he’s got a nice BMW 650i coupe on lease for $899 a month.

So I got to thinking, maybe the reason why Todd has so little assets for a man making six figures a year is because of temptation from all his credit cards. When there are no cookies in front of me, I never eat desert. As soon as you put out a tray of gooey white chocolate chip cookies at my disposal, it’s game over!

The Most Credit Cards I’ve Ever Had

Some people are completely against credit cards because they’ve gotten themselves into debt troubles before. How many credit cards should those folks with debt problems have? None. Alcoholics should not hang around in bars.

By only using a debit card or cash, such anti-credit card users help minimize themselves from relapsing into debt. I commend their cold turkey approach, but it’s not for me.

I recommend everyone have at least one credit card to build their credit score, use as an emergency, borrow money for free for 30 days, earn rewards points, and minimize the pain of losing cash when you lose your wallet.

How Many Credit Cards Are Ideal For Optimal Financial Health?

The question is, how many credit cards are ideal for optimal financial health. Let’s discuss!

The most I’ve ever had was between the ages of 22-24 when I had five. I thought it was so smart to open up new accounts with 12+ month long 0% introductory APR rates, pay the minimum for the full term and then transfer the balance to another 0% APR credit card. Borrowing money for free is always a splendid thing to do when you are young, poor, and have a lot of time on your hands.

Unfortunately, there’s a point where the “spend more, save more” mentality runs out. Notably when it becomes absolutely backwards to keep spending just because the interest rate is cheap. More than anything it felt annoying to always have a revolving balance so I decided to quit the shenanigans and just focus on better spending habits.

Down To Only Two Credit Cards

From 2001 to 2013 I only had two main credit cards: 1) my American Express corporate card and a 2) Citibank ThankYou credit card because I’ve been a long time banking client.

The reason why I only had two was both physical and mental. On the physical front, I can’t stand having a thick wallet. The wallet is always in my right butt pocket for all you pickpockets out there and it’s uncomfortable to sit down when things are uneven. The second reason for having only two credit cards is due to record keeping.

By only having one personal card, I was able to comfortably keep track of all my expenses online and make sure I was not going over budget. For example, if I had a $2,000 a month credit card budget, I didn’t have to stay on top of numerous credit card balances.

My expenses for the month were essentially my credit card bill + the amount of cash withdrawn from my checking account. Having only one made it much easier to SAVE money.

Track Your Credit Cards Closely

Now that I have a third credit card to earn points for travel, I’ve got to be a little more diligent about my spending. With a 0% introductory APR, 40,000 bonus points, and the first year’s fee waived, I’m reminded of the times when I had multiple credit cards once again.

Now I’m tempted to take advantage of new credit card offers with bonus points. It feels a little like going into relapse!

Just imagine, if I can earn 40,000 rewards points just by signing up and use a credit card to buy a $100,000 Range Rover to earn a total of 240,000 points, why wouldn’t I? That’s five or six round-trip flights from San Francisco to Hawaii.

Unfortunately, car dealerships usually only allow for a maximum of $3,000 to be charged due to fees they have to pay which cuts into their margins.

The Biggest Risks To Having Multiple Credit Cards

I’m a big advocate of less is more when it comes to credit cards. Let me explain why I recommend keeping the number of credit cards you have to three or less.

1) More Credit Cards = More Temptation To Spend

If you have a budget of $1,000 a month to spend on your credit card(s), it’s much easier to limit spending on one card compared to limiting spending with five.

Your mind automatically starts thinking about the various custom rewards points for each card and you charge accordingly just a little more than you should. If you charge even $100 more on average between your five credit cards, you’ve gone 5% over budget for the month.

Compound the over budget amount over the year and just like that you’ve got $1,200 more in credit card expenses or debt that needs to be paid off. We can’t help but think of each credit card as one powerful spending tool with its own APR rate, fantastic benefits, and multi-thousand dollar credit limits.

Derivative Explanation: I threw a potluck at my house for 20 confirmed guests one year. One of my good friends said she’d make enough spaghetti for 20 people. I told her to just make full portions enough for five people. She looked at me stubbornly and said, “Well what about the other 15 guests?”

I proceeded to explain to her that if all 20 guests made enough full-size portions for 20 people we’d have enough to feed 400 people! She didn’t get it and insisted to bring massive pots of sauce and pasta. At the end of the party, she had to lug both massive pots still full of pasta and sauce home. The lesson here is that we get confused with how much we can spend the more spending vehicles we have.

2) Incremental Rewards Diminish

Unless you are a billionaire, you only have so much money to spend a month. Let’s say your budget is $3,000 a month and you go from one rewards credit card to three: one for travel, one for entertainment, and another for online shopping.

You must now calculate the incremental rewards you’ll earn, given you would have received rewards if you put everything on your one and only credit card anyway. Once you calculate the incremental rewards received, you realize the benefits aren’t that much at all since you are not spending 3X more by have 3X more cards. And if you are spending above your $3,000 budget that’s no good either.

Derivative Explanation: One friend started bragging about how his investment portfolio was up 18% in 2013. That’s a great return for anyone, but guess what? The S&P 500 index is up 18% as well! In other words, my friend created no alpha.

All the time he spend researching and picking stocks was a waste since he could have just bought the S&P 500 ETF SPY and kicked back all year. To maximize your rewards from each card you’ve got to meticulously deploy your usage. Otherwise, you’re weighing down your finances with distractions. Real investors create alpha. Otherwise, you’re just a saver. Read: Are You A Real Investor If You Create No Alpha?)

3) Higher Chance Of Getting Into Debt

Credit cards have the highest interest rates for mass consumer lending other than payday loans. With the 10-year interest rate at 3%, the average credit card interest rate is roughly 15%. A 5X spread is enormous! No wonder why millions of credit cards are issued annually.

When you have more temptation to spend with more credit cards in your wallet, you will inevitably increase your chance of accumulating credit card debt.

Just like how we don’t bring alcoholics to bars, we shouldn’t arm consumers who have a proclivity to overindulge on anything with more credit cards. Undisciplined spending and high interest rates compounded over time have a devastating effect on your wealth. (Read: The Reality Of How People Get Into Debt – It Just Creeps Up!)

Derivative Explanation: There’s a great study that showed a 30% increase in spending per customer once McDonald’s started accepting credit cards. One frugal friend I know went from buying two $1 McDoubles for lunch twice a week in cash to buying two $4 Filet O’Fish sandwiches and a large Coke three times a week for the next two years. He no longer plays singles because he went from a svelte 165 lbs to 200 lbs and admitted he’s got revolving credit card debt attributed to his fast food addiction.

4) Burden On Your Credit Score

We learned in my article on how to get a 800 credit score or higher that the Amount Owed accounts for 30% of your credit score calculation, while New Credit accounts for 10% of your credit score calculation.

Nobody knows exactly how many credit cards is too many, but one can imagine that after five credit cards, opening up another credit card at the margin will likely hurt your credit score, or at least not help your credit score. Sure there are plenty of examples of people who have eight credit cards and still have good credit scores. But perhaps they would have even better credit scores if they only had three credit cards.

Derivative Explanation: After three gin and tonics, I’m feeling good. After 10 gin and tonics, please dial 911 and pump my stomach before I die.

Focus On Bigger Picture Financials

Applying for multiple credit cards all the time is an unhealthy use of time. It’s like the person who always focuses on the emergency fund and not on ways to make more money. They never take their personal finances higher because they’re focused on kindergarten basics.

Everyone should have at least one rewards card given the benefits of travel insurance, rewards points, ease of use, and free interest for 30 days. My Citicard of nine years is now gathering dust given I want double points on everything with my Barclaycard. If I didn’t have a business, I wouldn’t have a third credit card. However many credit cards you have, be careful not to get caught in a negative debt cycle or damage your credit score.

Spend your efforts instead on building passive income streams and making more money. If you don’t have a highly addictive personality, one to three credit cards is the ideal number for optimal financial health!

Wealth Building Recommendation

Track Your Wealth For Free

In order to optimize your finances, you’ve first got to track your finances. I recommend signing up for Personal Capital’s free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their fantastic Retirement Planning Calculator.

Those who are on top of their finances build much greater wealth longer term than those who don’t. I’ve used Personal Capital since 2012. It’s the best free financial app out there to manage your money.

Pay off Your Debt Faster

If you don’t have enough cash, getting a personal loan from Credible is a good place to start.

Personal loan rates have come down significantly in comparison to the average credit card interest rate. Thus, if you have expensive credit card debt, consider consolidating your debt into a lower interest-rate personal loan.

Credible has the most comprehensive marketplace for personal loans. Up to 11 lenders compete for your business to get you the best rate. Get real personal loan quotes in just two minutes after you fill out an application. Check out Credible today and see how much you could save.

For further suggestions on saving money and growing wealth, check out my Top Financial Products page.

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Updated for 2021 and beyond.