Breaking the Bad Credit, Credit Card Habit

For some, it can be worse than breaking a gambling or cigarette habit.  You don't believe it?  Have you ever "helped" or "did what you thought was helping" a loved one get out of credit card debt, only to find them right back in the same debt-ridden state a year or two later?  Maybe you were the one being helped out of your debt situatuion? If so, then you know, personally, how hard it can be to "kick"!

Let's go over the good uses for a credit card, and there are quite a few,  the dangers of credit cards, and calculate the true cost of that weight bench you had to have on credit for only $39.95 a month for 60 months.

Having credit cards doesn't mean you have to have bad credit --see how to use them wisely. 

Your Credit Card: Friend or Foe?

Your credit card can be your friend.  There even a few times where you would be hard-pressed to get by without it.  In fact, try obtaining airline tickets, reserving a hotel room, buying New York Yankees' tickets, or renting an automobile without one.

Some hotels will take debit cards, but they put a 7-10 day hold on your account whether you pay cash or use that card.  You can also end up being responsible for a lot more money for fraudulent charges should your debit card get stolen compared to a $50 loss if it's your credit card.  

Apply now for the Orchard Bank credit card and start living again.  Just keep this rule in mind, if you don't have the cash to pay for it today, don't charge it today.  A credit card is not meant to be a loan, it's meant for convenience and safety.

Processing Fee: $19 Annual Fee: $79 APR: 14.90%*        Apply Now!

A credit card is also a useful tool for tracking monthly expenses.  It's even more valuable when you have to pay for work expenses out-of-pocket upfront.  If you lose a receipt for something you've purchased, then you would still have a record to be reimbursed from--the monthly statement.  They also provide a way to postpone payment on items and thereby earn more interest on your money.

For example, if you have a money market account that gives you 5% annual interest and you spend $1,000 a month through your credit card, you can keep that $1,000 in your money market account for an additional month. At the end of a year you would have earned an additional $50 for doing nothing. Now $50 may not be much but it's free!

Your credit card may also earn you cash through rewards programs where you get cash back, frequent flyer miles or discounts on services and merchandise.

Credit Card Danger Zone

Many people use credit cards when they don't have the cash.  Too many people see their credit limit not as the maximum amount of debt they can go into, but as an account full of money that they can spend.   They then make only the minimum payments required. Often the minimum payment is set so that you only pay the monthly finance charge (interest) or just a small amount above it.  Of course, this is the type of behavior your credit card company adores, but are you really that interested in being adored by them?  One-sided relationships are all over the place --why get into one with your credit card company? 

What is even worse is that many people who are paying 21% interest rates are focusing their attention on saving money before they pay off their bills-- a savings account would only earn .5% and a mutual fund that probably averages 11%. 

Do you know how much the average american pays in interest on a $7,000 credit card balance charging 21% per year, and approximately how long it would take to pay that balance off only making the minimum payments?  $25,914.75 in  698 payments or 58.2 years

Month 1: $154.00; Month 2: $153.31; Month 3: $152.62; Month 4: $151.93; Month 5: $151.25; etc.

Do you also realize that by continuing to make the minimum payment due ($154.00) based upon the original $7,000 that you could decrease the amount of time (payments due) from 58.3 years to 7.3 years and save $19,165.60 in interest ($25,914.75 to $6,749.15)?