Great Savings 6 – Change Your Credit Card Habits

 

Great Savings 6: Change Your Credit Card Habits

Today's Tip: It's time to take a closer look at those credit card habits.

Sometimes creating more from less is as simple as changing a habit. Have you really looked at your habits, lately? In this tip, we’ll examine credit cards and they way they can rob us of a secure financial future.

 

If you (a) pay off your credit cards every month without fail, and (b) only use them because of a cash-back or special awards program, then consider yourself lucky. Most people carry at least some balance and that balance incurs monthly interest charges. Pay late and you’ll get hit with a late fee. In some cases, if you go over your credit limit you’ll also get hit with a fee. All these charges add up. We don’t really notice it as it happens, because the money just dribbles away, a little at a time. Plus, it’s hard to argue the convenience—carrying around a wad of cash can seem inconvenient if not risky. The trouble begins when we wake up to the fact we’re carrying way more debt than we can handle.

 

Debt as a function of time.

Over time increasing our debt load robs us of our ability to build wealth. The more debt, the less savings, it's as simple as that.

 

It’s worth examining your credit card habits with a fine tooth comb. Here are some simple questions to ask yourself:

 

(1) Are you paying interest charges every month to carry a balance over? If so, how much interest did you pay last year?

(2) Have you recently made a late credit card payment? If you have, did you get dinged either with a fee or a higher interest rate?

(3) Have you gone over your credit limit in the last 12 months? If you have, did you incur a fee? How often did you go over your limit?

 

If I was debt free, I  think I'd like to buy a boat.

Quit giving the banks your money. Rip up those cards and start saving it for something you really want.

Answering questions like these can give you a feeling for the real cost of holding onto those cards. Let’s take an example. If you’re carrying an average $5,000 credit card balance each month and are paying a 22% annual interest rate, that works out to ($5000 x .22 or) $1100 per year of interest charges. Do you have $10,000 dollars of debt? Then double the sum from our previous example and you’re paying out $2200 per year. Wow! That’s a lot of money to be giving away to the bank—money you’ll never get back. Think about it: Over 20 years it’s ($2200 x 20 or) $44,000 and that doesn’t include any interest you’d earn if the money was in savings!

 

As we begin talking about saving money and building wealth, keeping a tight reign on spending becomes critical. Just ask yourself: Would you like $44,000 in cash for a new car, a new boat, a kitchen remodel, or have it to pay for your child’s education? If so, consider taking action immediately.

 

 

Action Item: Shred your credit cards or at least pull them out of your wallet and put them under lock and key. Now, swear off using them. Better yet, tell your family and close friends to stop you if they see you using a credit card. It’ll be much harder dipping into that money you never had in the first place. Now, start paying off the cards with the highest interest charges first. If you have room on a credit card account with a lower interest rate, transfer your balance from a higher rate account—at least, do this if you don’t get dinged with a fee. In a way, you can consider this your own debt consolidation program. Once you’ve paid down all your credit card balances, start putting that same amount you’ve been paying every month in savings. In just a few years, you could be debt free and have some significant money put aside.

 

Building wealth doesn’t happen overnight. It took you time to build up those debts so it’ll take time and commitment to be completely debt-free. Be patient. You can do this. Just start taking the steps.

 

If your debt is large check out these Javabird.com articles:
Debt Relief: Two Solutions That Work
Danger Ahead: The Credit Card Disconnect

 

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