I hate to tell you, but that high interest rate you’re paying on your credit. It’s because of people like me.
I was reading about Andreas Bard’s credit card experience. I found a link to the post on Nate Whitehill’s Powerful Posts of the Week and I thought I’d weigh in on what’s good and what’s bad about credit cards.
The Two Camps Of Credit Card Philosophy
- They’re evil.
- Not really.
First, They’re Evil
Credit card debt has been growing massively over the last several years. The main reason for this is easy credit. Banks have lowered the bar on what kind of income level, credit history, and employment stabilty that’s required to get a credit card.
Ten years ago you needed to show a level of stability and responsibilty to get a credit card. You needed to show that you were a low risk. Today, you just need to show them that you have a pulse.
If you don’t have a lot of experience with money or personal budgeting, it’s pretty easy to get yourself in debt quickly with a pocketful of plastic. And once you get into debt with these little plastic miracles, you have to make a decision. Are they evil. Or did you just let yourself get caught in the money making machine that they are. Choose the latter.
So Two, Maybe They’re Not So Bad
I use my credit card a lot. But I pay it off every month, and I only use it on things that I’d normally buy. I don’t have any tendency to go crazy with the card because I make purchasing decisions based on my cash, not my credit. You always want to be aware of your cash position.
The advantage is, I use the banks money all month while my money is working for me. And then I pay them back at the end of the month. In full. Interest free.
Credit card issuers generally hate people like me because I cost them money. Which is why, if you’re in debt, you have to pay for that cost with a high interest rate. They’re high, mainly because it’s high risk credit. But you get the picture.
Break The Debt Cycle
To take advantage of the good things credit cards have to offer, you have to get out from under them first. Here are some best practices for turning the tables in your favour:
- Budget. You need to track all your income and expenses. Every month. If you’ve got a paycheck coming in twice a month or every two weeks, then go through your budget that often. No matter how ugly the picture is and how much you don’t want to look at it, you have to. Don’t do it for a couple months and then stop. Do it until you die because no one cares about your financial situation more than you do.
- Keep one card. All you need is one good credit card. Get rid of the rest, and focus on paying those ones off first. This makes it a lot easier to track and manage your expenses on an ongoing basis. There’s only one bill to take care of every month.
- Consolidate. Go and get a line of credit from your bank. It’s a lot cheaper than credit card rates and you can consolidate all your debt into one bill. If you can’t get a line of credit, go talk to another bank and explain to them why you want it.
- Don’t use them. No exceptions. You start to make some progress on paying them off, and then boom, the balance is right back up there. You can’t pay them off if you’re using them. Don’t use them. Like I said, keep one and do nothing with the others except pay them off. If you only have one card, then ignore the “keep one card” rule and don’t use it.
- Shop consciously. Impulse buying is a killer. Force yourself to stop and make a conscious decision. Do you need this? Can you get it cheaper? Make the decision to leave the store, think about the purchase, and then go back later after you’ve thought it through.
So those are some good strategies. They work. And after you do the hard work, you can take advantage of credit cards and make them work for you.
Either your money is working for you or it’s working against you. There is no middle ground.