First post! Woohoo! Down to business. Credit cards can be dangerous! Surprised? I bet not. You think it’s common sense, but in reality some people simply don’t know the dangers.
You’ve probably heard statistics that the average American household credit card debt is approx $8000 or some crazy number. Well…that’s the average – there are those crazy folks who you see on Dr. Phil who have racked up $50,000 in debt over a year or more and it’s ruining their marriage. The truth is that most people carry a much smaller balance.
I’ve read on some other websites that about 29% of people owe over $1,000. Also, of people who owe $10,000 or more on credit cards – about 36% have incomes of under $50,000. This is crazy! Even the Best Credit card companies are part of the problem – issuing too much credit to people who they know can’t afford it. If you’re in this situation – it’s not time to play the victim. It’s time to take action and get that stuff paid off!
Many financial experts will tell you to freeze your spending on credit cards – do whatever you have to do – lower your limit, put a hold on new charges, etc. Then start paying off your credit cards with the highest interest rate first. Some say to pay off the lowest balance first then roll that money you would have put to the big payments after they are done. The low apr credit cards are probably ok to sit for now. This can also work. There isn’t a perfect way to do it.
Why are credit cards so dangerous? Well, some people think they aren’t. There are some people who think it’s a good idea to have a high limit card around for emergencies, but this is a really bad idea. It’s best to have a savings account with anywhere from 1-6 months worth of income (barebones expenses) in the bank. This is a far better idea for a safety net and can be done with discipline within 6 months to 1 year. The problem with that high limit card is that not everything can be put on the card so you’ll be tempted to take a cash advance which has extremely high rates. Also, the interest rate on a credit card is about the most expensive loan you’ll ever get.
So – just save for a rainy day. Start by putting a fixed dollar amount per paycheck in savings as if it were an expense – maybe $10-20 per paycheck. See if you miss it. If not, increase it. Then you can have it go into a money market fund like paypal to earn interest – in time this could be substantial.
Bottom line…start saving a little. Start paying off the credit cards.
