Okay, I may have blogged on this before, but I think it bears repeating. Actually, I recently blogged on how to NOT spend a bunch of money on Christmas gifts. But let’s talk about credit cards…
Credit cards may be good for establishing credit, or getting rewards – like money back, so I suppose – if used properly – credit cards MAY be okay. For example, my mother has a Discover card that gives her money back. She charges the things she would normally spend money on onto the credit card. However – she has the cash set aside, in her account, and pays the total amount of the card off each month. This way she actually makes money on her credit card. She swears by that method, and it works for her because she is disciplined enough to know only to charge what she can pay off each month (what she would be paying cash for if she weren’t putting it on the card). Good for her. How many of you are that disciplined?
The largest percentage of people use credit cards to get things they want but don’t have the money to pay for. Yes, some people get things they need with credit cards, which makes them a necessary evil in those cases, but most people use them to get things they want. Bad idea! For example: I am looking at a credit card bill (not mine – I don’t have a credit card). The credit limit on this particular card is $1,000.00. The owner has been allowed to go over their limit by almost double! I called the company, with a “generic question”.
“Why is someone who has a credit limit of $1,000 allowed to continue to charge amounts over that limit?” Answer: “It’s a courtesy to insure continuity of the account and avoid embarrassment at the point of sale.” UGH! I didn’t ask, but why bother to have a limit if that is the case – just let them charge away. They did tell me that the customer can request a “hard limit” which would not allow them to go over, but they have to request it. Really? Ugh.
So, looking at the bill, the “minimum payment due” is under $50. Great, under $50 is an affordable easy payment. Okay, but let’s look at what is very clearly printed on the bill – if you take the time to look.
“Minimum Payment Warning.” They have a chart that points out that if you pay the minimum payment, it will take six years to pay off the balance and you will pay $1,000 MORE than what you spent. Yup, that little thing called “interest” will get you every time. If you double up the minimum payment, you can pay it off in three years and only pay $700 more than you spent. Now there’s a deal for ya. NOT.
Credit card companies, and marketing efforts, allow people to think that you can have the moon, which will cost $5,000 (just an example) for $50 a month – easy payments and the moon is yours right now. How cool is that?! You can have the moon paid off in 100 months (a little over eight years). Sweet! Ah, but then there’s that little thing called interest. Not to get too technical so let’s say 20% interest rate, that’s another $1000. So, for the moon you will be paying $50 a month for another 20 months – ten years to pay off the moon. Is that really worth it? Yes, you have the moon, but after TEN years, it’s probably going to be dim and full of holes. You may even have decided to throw it out – and you’re still making payments on it. I’ve even seen bills where the minimum payment requested is less than the interest being charged. At that rate the card owner will never get the card paid off!
It’s a tough lesson to learn, but if you can learn it you really will be better off…
Don’t buy anything unless you have the money to pay for it. Now, obviously – car loans & mortgages, business loans, school loans and such – most people can’t pay cash for these things. How about those spiffy new shoes, or that amazing purse? A trip to Flordia, or maybe Hawaii, or Europe? Those super cool rims for your car tires, the booming stereo system? Are these necessities? I don’t THINK so! If you want them, and have the money to buy them (that would be extra money ,“disposable income”, after you have paid your bills and bought food) go for it. If you want it, but are going to put it on your credit card… STOP! If you continue to charge things to your credit cards you will be paying “the man” for the rest of your life and will never be able to have the money to actually “buy” something.
If you are up to your ears in credit card debt, Stop Spending! The only way out from under your credit cards is to suck it up and stop using the credit cards. Don’t buy any “wants” but only “needs”, and pay cash for them. Pay the cards off – more than just the minimum. Keep one for emergencies, but use it only for emergencies – not for that hot red dress/shoes you see in the window. Once you are out from under those expensive credit cards, start saving money. Then when you want something – look at your savings account. Do you have enough money to buy the item? Yeah? Leaving some money still in the savings account – for emergencies? Yeah? OK, then buy it – pay cash for it. It’s a wonderful feeling to buy something you have the money to purchase. Try it – you’ll like it.