Carrying a Balance on Your Credit Card?
Sunday, November 19, 2006 5:57If you want to really experience what debt feels like, carry a balance on your credit card for a few months in a row. You will be well on your way to being poor. Lets look at how it happens, how to get rid of this crippling type of debt and how to avoid it in the future.
One of the big issues credit cards cause is spending beyond your means, which leads to carrying a balance forward. Briefly it goes like this, you buy something you expect to have the money for in a few weeks. For whatever reason, that money does not show up. Unfortunately the bill always does. You make the minimum payment and now the HUGE interest rates kick in and the next bill is a lot higher. This cycle can continue in many households for years. We keep buying and never get out of the debt cycle.
Depending on your specific credit card the rules may change. Starting from a zero balance (nice dream for some of us), we buy something and get a ‘grace period’. A few weeks where there is no interest charged on that purchase. It is really a no interest loan. Isn’t that nice of them. Don’t fool yourself they know exactly what they are doing.
If you violate that grace period, or do not pay when you are supposed to They start charging you interest from the day of the purchase. No grace period at all, as long as you carry a balance forward from month to month. Or said another way, if you do not pay all the money you owe the card company each month they continue to charge a very high rate of interest. This interest is compounding, that means you will be paying interest on interest. That is a nasty place to be.
What can you do? My normal line is cut up your cards and only use cash. If that is just not going to do it for you, look into debt consolidation. This is where you put all of your debts in one basket with a lower interest rate charge. You save some money on interest and use that to pay off the debt quicker. If you want to retire someday you must have zero credit card debt from month to month.
The simple way to not have being part of the debt cycle again is to implement a reward-punishment system. If you get a zero balance on your credit card, put $20-50 in an account that you can spend on anything you want. If you carry a balance forward, have your cable TV disconnected for 2 months, or something equally horrible to you. Talk is cheap, make it real and you will make it happen. Ever measure you take to lower your credit card debt puts you will be one big step closer to being wealthy. Be smart to be wealthy.
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