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Understanding Credit Cards

On the radio programs, the seminars and the counseling we provide you will always hear us say what we think of credit cards:

“Credit cards are great, what’s bad about them is not knowing how manage them properly and/or getting into credit card debt.”

Many times when you use a credit card, you get great benefits such as point towards other purchases, money back guarantees, some different types of insurances included in purchases and the convenience and security of not carrying cash when traveling.

This security and these conveniences can turn into a real nightmare if you fall in the pitfall of credit card debt.

We believe that the best credit card debt is the one that you don’t have. But if you do please review our 10 Symptoms that you are in Debt.

Please answer the following questions to yourself:

  • Have you noticed that when you go to a department store and wish to pay cash, the store clerk will ask you many times to apply for the store card?
  • Did you know that most department stores pay their stores clerks every time they convince a customer to apply for store credit?
  • Did you know that a significant portion of the store’s income comes from the income associated with their store credit cards?
  • Did you know that store credit card typically charge higher interest rate?
  • Did you know that having too many store cards can be considered detrimental for you credit?

What follows with stores cards, and in general with credit card debt is the following scenario:

You start your life with a store credit card, and it’s really a time to remember, you are so proud to have your first credit card.

You might not necessarily know how to handle credit card debt, all you might now is that stores swipe it through a machine and you get brand new stuff.

Look at any credit card bill, and by law, you will find information similar to the following:

Balance: $2,600.00
APR: %18
Minimum Payment: $50.00
Due Date: January 25th

Now ask yourself:

  • Do you really know what it means?
  • Does it tell you how long it is going to take to pay the balance off, if you only made that minimum monthly payment? And more importantly how come the statement doesn’t tell you?
  • Have you noticed that if you made that minimum monthly payment, next month minimum payment required will be less? So that you pay less and loose any advantage of fixed payments?
  • Do you know what difference it would make if you instead of making the minimum payment required you would pay a fixed amount?
  • Did you know that, in general, credit card companies oppose to legislation that would have them post the time to pay off a credit card on their statements if a customer made the minimum monthly payment?

In that time you will have paid an amount of finance charges of $2,485.00. It is pretty much double the amount you borrowed. And that is making a fixed payment of $50.00. If you instead always made the minimum payment typically required, it would take 423 months and $6730.73 in interest. Remember that as credit card balances go down, minimum payment required decreases, and it basically extends the time to pay off your credit card.

What will you do now when that clerk at the store offers you their store card?

I believe we already know your answer.

Please let us know if you need help, we are here to help you with credit counseling education and organization of your financial life. Request a Free Analysis and a certified credit counselor will contact you as soon as possible.