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Article Series: Debt Relief & Debt Consolidation
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Credit
Card Companies Don’t Want You to Pay
In all your dealings with credit cards, remember this one thing:
they don’t want you to pay. The moment you pay back everything
you owe, you’re free from their interest, and that’s not
what they want. They want you to keep on paying them a little
every month for the rest of your life, making them a steady
profit on things you long since forgot about buying.
Revolving Debt.
Most credit cards are what’s called ‘revolving’ debt – the
only real exceptions are American Express and Diner’s Club
cards, which must still be paid off in full every month. They
aren’t really ‘credit’ cards at all – they’re charge cards
for people who could afford to pay in cash anyway.
Revolving debt means that you can pay off as much as you like
each month, or you can just pay the minimum, and you can run
up as much debt as you want each month, up to the maximum.
Unlike a fixed-term loan (a 20-year mortgage, for example),
you don’t know how much your payments are going to be, and
you don’t know when you’re going to stop paying. Each new purchase
can dramatically extend the time that it’s going to take you
to get your balance back down to $0.
With a credit card, then, it’s perfectly possible to keep
running a ‘balance’ (a debt) on your card forever, spending
a little sometimes and paying a little back sometimes – and
always paying interest. This is why credit cards are so profitable
for them, and so expensive for you.
Add the Interest in Your Head.
Don’t be fooled into thinking that you’ll never have to pay
your credit card’s interest – sooner or later, for some reason,
you will. A good strategy is to add your card’s yearly interest
rates to everything you buy when you’re thinking about the
price. If that thing is worth $100 to you, is it worth $115
(15% interest added)?
Likewise, if you buy something with your savings, take off
the interest you get on your savings as a mental discount.
This will help you to make the differences between savings
and debt feel more real – saving instead of having debt is
like having a money-off coupon you carry around with you all
the time.
A Dollar Today Isn’t a Dollar Tomorrow.
You probably don’t think about it, but using a credit card
basically makes your money worth less than it would be usually.
That’s why it feels so hard to pay a credit card back – if
you borrow a dollar from a credit card at 15% interest, sit
on it for five years, and then give it back, guess what? You
still owe them the dollar. The dollar you gave them back was
eaten up by interest.
This is one of the biggest things you need to understand about
credit card debt: the longer you have it for, the bigger the
problem it gets. If you have a problem, the last thing you
should do is ignore it, because it will only get worse – you
have to try and beat it early.
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by SolveYourProblem.com
: 2006
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