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Credit cards are a normal way of life. From the moment we turn 18 to the last day we live, we will have at one point accrued credit card debt. It’s not our fault. Society shoves credit cards down our throats and says to us that getting MORE credit is normal, “charge it” is now a regular part of our vocabulary, and having outstanding credit balances are no big deal.
I’ve learned the hard way how much money these credit card habits can suck from my bank account. It has at one point, literally made me broke.
7 Reasons why your credit cards are making you broke!
1. Interest rates and Fees
The average interest rate for a credit card is about 15%, but this varies tremendously from person to person, depending on your credit score. The point is, no matter what your interest rate, you’re still paying more than just your purchase, and that’s just extra money out of your pocket each month.
2. Balance Transfers
I’ve done my share of balance transfers back in the day. It seems like a great plan…at first. I mean, you get to consolidate all of your debt and make one payment instead of 4 or 5, in my case. But, you get charged fees for those transfers and that attractive 0% APR that they offer for the year only works if you pay the ENTIRE balance in a year. Good luck if you don’t finish paying in time.
Those rates will skyrocket, using compound interest. Compound interest is a handy tool that banks have to charge you back interest and pile it on each month. You’ll end up paying a MUCH bigger payment than your original transferred balance. Don’t do this unless you are absolutely sure you can pay it all off in time before they start charging interest.
3. Minimum payments
I was a minimum payment junkie when I got my first 3 credit cards. By the way, I thought I was killing the adulting game by having so many credit cards. No judging, I was only 18.
I thought that THIS was the way to build credit, haha. Not so funny when I ended up paying $135 on my Macy’s credit card when I only charged $85 to begin with.
Minimum payments trap you, for a long time! You pay so much interest in the process, you end up paying 30% to 50% more than you originally charged to the card. It eats away at your wallet and your dignity. Pay off the card as soon as you can. Paying your balance off in full each month is the best option. You’ll pay no interest this way.
4. You charge more money
Yes. You do. Many people don’t realize that plastic does not hurt as much as cash when you’re paying for things. I personally have a budget for my credit card each month, and I pay it off in full and have NEVER paid interest since I’ve converted to the Frugal life. But I will tell you, I’ve fallen trap to this many times. I charge, charge, charge, and at the end of the month, I’m angry with myself for buying stupid things that I wouldn’t have if I had to buy it in cash.
5. Annual Fee
Okay, let’s just agree on this one thing. If there is nothing else you take from this article, please take this piece of advice. Don’t sign up for a credit card with an annual fee. There are so many credit card companies out there that would LOVE to have your business and will do just about ANYTHING to get it. So, just don’t. You can definitely save the annual fees.
6. Rewards and Promos
Okay, this is another one that I’m still struggling with. I have one credit card that I use every month for all of my household expenses such as gas, food, entertainment, eating out, and gifts. I use this card because I love the reward check I get each year.
And although now I have a great amount of control, in the past, this reward would be in the back of my mind every time I charged anything to this card. Like, I was purposely charging to rack up the points so I could get more money at the end of the year. Crazy concept, I know, but that is exactly what credit card companies want you to do. I’ve gotten much better at this, but this is a fair warning that this is a very easy trap. Just beware.
7. You buy things you can’t afford
How many times have we purchased something, on an impulse, without thinking of what we actually had in our bank account? I mean, do we even think about our bank account balance anymore? Often times, we charge it and think of the payment plan later. We think, oh we can pay it off in 4-5 months, and never think about how much it actually costs us to do this.
Let me ask you this. And answer honestly. Would you purchase that same thing if you had to use your debit card? You might hesitate. You might think it over for a few days. You might even write a pros and cons list before purchasing. What I’m getting at is that we would most likely have a longer thought process on what we purchased if we had to purchase it in cash.
Which leads me to my point number #7, we purchase a lot of things that we normally could not afford if it weren’t for our credit cards.
Rule of thumb: Don’t purchase anything on credit that you don’t have money for in your bank account. This will help with those impulse buys and will make you more conscious of your purchases. It will also save you tons of money.
Let me know in the comments if any of these were new concepts to you or if you are a whiz and already knew these tricks that credit card companies play on all of us. Can’t wait to hear from you!
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