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When You Pay With Plastic
When you pay with plastic, consider the consequences
Credit cards have become such an essential part of our daily lives that most of us forget how much it
costs in interest and fees to use them.
Most of us don’t think about the fact that a sale item (Oh look how much I saved! It was on sale) when
paid for with minimum credit card payments may double or triple the purchase price of the item we bought.
For the most part, buying has become therapeutic - it makes us feel better.
Credit cards have become such an essential part of our daily existence that most of us forget how much
it costs to use them when they are not paid off in full each month (interest, fees and sometimes even in
lost opportunities).
Consider for example, a single credit card charge of $3,000 carried as revolving debt, making minimum payments,
can result in paying three to four times the original purchase price while taking up to 15 years to pay off the
debt. To determine if you are paying too much; add up the interest fees you pay each year; record the interest
rates for each credit card you are carrying a balance; record the amount, interest earnings and interest rate for
each savings, money market, certificate of deposit (CD) or other investments you have for the same period.
To determine if you are paying to much answer the following questions:
Are the interest rates for your credit cards higher than the interest rates for your savings and
investments?
Did you pay more in interest on your credit cards than you saved or invested?
Did you pay more in interest on your credit cards than you earned on your savings and investment?
Is your total credit card balance greater than your savings and investment?
If you answered yes to any of these questions, you paid too much for the items you purchased on your credit
card. If you answered yes to any of these questions it is time to create an action plan to reduce your reliance
on credit cards and mounting credit card debt. For those that need some help with budgeting and managing debt,
they can contact The National Foundation for Consumer Credit at 800/ 388-2227. There are also a number of online
tools such as the MSN Money Central Debt Consolidator ,
which is used to determine if you would be better off merging your credit into a single, lower interest credit account.
Some Considerations and Hints
Pay off the balance on your credit cards before interest is charged or as soon as possible.
It you must take longer to pay off a credit card charge have a plan to pay off the balance within a fixed period of time, say three or four months.
Minimum monthly payments may be as low as 2% of the balance each month.
Pay more than the minimum amount due each month. The longer it takes to pay, the more it costs.
Credit card companies can charge annual fees, monthly fees, penalty fees for late payment and penalty fees if you exceed you card credit limit.
Too much credit card debt lowers your credit score and makes you less attractive for better credit rates and benefits.
Carrying credit debt limits your ability to take advantage of other opportunities because your credit limits and income are already obligated.
Excessive credit card debt may also be viewed negatively as part of background checks for employment or promotions.
Always be aware of the consequences of paying with plastic over time. Make informed decisions.
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