Credit cards give you the opportunity to spend more money than you have in your bank account and give you the endless possibilities of deferred payments and buying things at great discounts. That is a fact. But have you ever given a thought to if these were the best solutions to live according to ? Have you ever sit down and pondered the fact that what lies behind credit card offers all around you are not the solutions you are not supposed to benefit from? Isn´t it true that in nowadays world no one will give you something at the price he cannot earn at? Well, yes, that would actually be the truth. Now let me explain it to you in the best possible way how come that you end up in more and more debt as the time passes by although you bought the things at discounts. And this is only the debt you may find yourself into per one of those 3, 4 or 7 credit cards you probably have in your wallet, just as any average citizen does nowadays, unfortunately. Let me take some very graphical example in order to make the explanation as simpler as possible so everyone can understand. You are walking down the street and there is a big, eye-attractive offer for HDTV plasma screen you have been planning on buying for quite some time already. And it says that the offer is "only" 2250$ at discount. Who would pass on that offer today? Only a lunatic, you would say. The next thing you know is that, thanks to that tiny, plastic card that is seemingly opening the world of possibilities for you, you are inside the shop buying the long desirable screen. Not knowing that your happiness won´t be long lasting actually. Now, let me put down to paper all the taxes and interest rates accompanying the purchase of the screen to see how much the screen is going to actually cost you in the end. If the interest rate, minimal interest rate on the credit card you use is 21% and the calculated monthly payment of this screen is for you "only" 44$, you will need more than 4 years to pay off the debt, and in the end your purchase will cost you with this calculation 5713$ . So, if the offer you saw, held 5713$ digit on, instead of the one saying the price of the screen was ˝heavenly˝ 2250$ would you had allowed yourself the purchase? I am afraid the answer is negative. Am I right? But face it! That is how we all fall into one very carefully and cunningly set trap if we do not pay attention and do not give ourselves time to ponder things over. Though, do you think the suffering ends there? This one purchase will one day cost you more than ˝few extra˝ dollars only. It will cost you nerves, health, sleep, marriage, family problems and gods know what else. But there is always the way to live debt free in a debt based society. You just need not let others outsmart you.
Nice post, which graphically explains the true cost of credit. As you say, if the price tag reflected the interest, nobody would ever buy anything. In the same way, if you had to go to the bank and draw out the cost of that TV, you'd thing twice about it. $2250 is a serious wad of cash, and most people would look at it and decide it could be put to better use. I'm in the process of clearing my credit card balances, and I've decided that we will only buy big ticket purchases when we have the money to hand over, and if we really need them. My husband's laptop has died, but he doesn't use it every day like I do - I'm a freelance writer, and my laptop is the main tool of my trade. We're going to postpone the purchase until we have the cash available, which will be in about 2 months' time. In the meantime, he'll use mine when I'm not working. From now on, we'll apply those criteria to everything.
Awesome thread. Very true too. One really does need to pay attention to interest rates on any loan, not only credit cards. Store credit is often worse and the interest rate at many clothing and furniture stores are even HIGHER than a basic credit. My gran taught us that if you cannot afford it, simple: don't buy it. I stuck to this and it has saved me many a headache. So, this is a very valuable bit of information. Derivatives are evil (e.g. interest etc )...it is what made a few rich at the expense of the majority. But people are finally waking up and what we do with that is up to us. Many are saying: no more.
I think a lot of people do not consider the interest rate or the minimum payments when taking out a credit card. Too many people view it as "Free Money". A very good and detailed post, well worth a read! Many people do not look to the future well. I personally would never buy something on my credit card I could not pay off right now. I have a limited transaction debit account (Thanks Canada!) so I use my 1% rewards card for all purchases, and pay everything off as soon as the bill comes.
It is always tempting to think that things will be a little better tomorrow, and that purchase will be easier to pay for then. But our experience has been that something almost always happens between the purchase and the due date for the bill that makes the payment even more difficult. And that's not even figuring in the extra interest expense you so clearly illustrated. We finally quit using our credit cards and got everything paid off a few years ago, and that has made a huge difference for us.
Here is the thing, if you are like me then you aren't thinking, "I love me a big screen." You are thinking, "We have no food in the house." or "The gas is about to be shut off." I use my credit cards not as a way to have fun, but as a way to keep my family above the waterline. I've used them to buy food, pay bills, keep the car functional, and make sure the things they need keep coming. That means that I've gotten a lot of debt, but I make sure to at least keep the minimum and to pay a lot more than the minimum whenever I can. Still interest is an awful, hateful thing.
I know what you are saying, Esperahol! I used to find myself out of money, and needing gas for the car in order to get to work so I could earn the money I needed. Then a big chunk of those earnings had to go back to pay the credit card for the gas. And sometimes it is really hard to find things to cut. We never seemed to make any headway on getting the thing paid off until we found a way to stop using it.
I have a very simple approach to this credit card thing. I never buy on credit when I can pay cash. And if I can't afford to pay cash I don't buy it at all. It's tough living like this but it saved me a lot of grief. The important thing is that I do not put myself into debt. Which leaves me free. To live my life as I want to. Isn't freedom great?
We use credit cards a lot. Becuase our credit cards have good rewards programs and it's always good to get free money. But we are very carefully to EVERY month pay off all of the money we put on the credit card and we do it before the interest has a chance to kick in. There are times we carry a balance on our cards and that's if we've needed to make a large purchase (furniture, home repairs etc.) that we woul dhave had to finance anyways.
Very good post. So many of the costs of using these is hidden from people and then they get shocked when the cards have more of a balance then what they could have ever imagined affording beforehand. I know this happened to me before and then when my husband could not pay because his salary was cut it really killed our credit rating.
