The Credit Card Trap

I was expecting a cheque from Shopping.com to show up at my doorsteps today. It didn’t come, which was too bad, because my Visa bill is due today. Luckily I had enough funds in my account to pay it off. One thing I have learned over the years is to NEVER run a credit card balance. The interest will kill you. Not only can you not deduct the interest on credit cards but you have to pay it with after tax dollars. So that 18% per year they charge become as high a 36% interest.

There are some who will say to just not use credit cards period. I say that is very poor advice. The proper use of credit is a very powerful thing. It’s a matter of knowing the differences between good debts and bad debts. If you always pay cash for everything and don’t buy new toys unless you have the cash in the bank then getting a credit card is a good thing. Just make sure you get the right one. I use a Visa that gives me 1% cash back on all my purchases. Since I always pay off this Visa every month I am really making money on it. However, this only works if you pay the card off every month. If I were to run a balance, the interest on the balance will kill off any income made from the 1% cash back.

The worst thing anyone can do is to fall into the credit card trap because it can take years to get out, if they ever do get out. Things start off easy enough, a charge here, a charge there, etc. You always think “I’ll pay it off when the bill comes.” However, all those little charges add up really fast and next thing you know you can’t pay the entire Visa balance off. So you start making minimum payments and keep charging, because charging for things is so easy. As you approach your limit, the credit card company increases your credit limit so you can charge more – which you do of course. That is the credit card trap. I know people who are still paying for that pizza they order four years ago. I’ve been one of them. It took me years to get out of it. Please don’t be like I use to be.


9 thoughts on “The Credit Card Trap”

  1. Lemmy says:

    John hit the right points when it comes to credi card debt. For years, I’ve always kept my credit card limit pretty low and I’ve done good job preventing myself fron spending beyond my means. And since electronic payments can be done instantly through the Internet, I’ve been able to pay off my credit card expenditures within minutes of a transaction. In the end, it all comes down to smart budgeting and balancing your NEEDS and WANTS. As the old saying goes, “money doesn’t grow on trees” and even if it did, the money would’nt grow fast enough to satisfy our many needs.

  2. Lady In Red says:

    Get a job that pays real money and you will not have to have a credit card. Of course knowing how to “invest” is a big big plus. I refuse to own a credit card. Why? I use my debt card to pay on the spot for everything I purchase. 🙂

    Lemmy – my “needs” & “wants” have always been met so far in my life without the use of a credit card. 🙂

  3. John Chow says:

    Does your debit card give you cash back for using it? Does your debit card protect you with $100,000 of insurance if you use it to buy a plane ticket? Does you debit card offer extended warranty on the stuff you buy on top of the manufacturer’s warranty? If your car breaks down, can you phone your debit card company to come get you?

    Well if you had my Visa, the answer would be yes to all the above. The key is to not abuse the card. Make it work for you, instead of you working for it. That is the smart use of credit. 🙂

  4. Lady In Red says:

    When I use my debt card it does not give me money to use it nor am I careless enough to loose it for them to protect it with the funds you stated, but if you got hold of it and use it then yes I’m covered.

    If my car breaks down I call the wrecker and they will come and get me plus the vehicle and then I get a loaner until my car is repaired without extra cost.

    Why would I want an extended warrarnty? After the original warranty expires it’s time to replace most things any way.

    The debit card works rather well for me. I planned for the future John and it’s paying off rather well! 🙂 After all – I retired at a rather early age and I couldn’t have done it with the few pennies that a credit card could possibly have earn for me.

  5. John Chow says:

    It all depends on how much you charge a year. True, 1% cash back may not be that much but I’ll charge $100K on the card this year. $1,000 cash back is nothing to sneeze at. 🙂

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