This is a guest post from my friend (and new blogger), Debt and the Girl.
Please check out her blog and show her some love!
The downfall of many Americans is the frequent use of credit cards and the many, many items that can be purchased with just a swipe of that shiny plastic.
Americans now have an average of between $10,000 to $15,000 in credit card debt.
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Now with these same companies trying to make it easier to pay with credit (such as turning your smart phone into a credit card), there is simply too much temptation to overspend. With all this temptation, it is good to have a little perspective when it comes to the whole motto of buying today and paying tomorrow.
I for one am a very visual person and understand things better when I have a visual representation of them.
Let’s say I had $1,000 in credit card debt (which is a small number given the national average). Let’s say that the credit card was charging a relatively low amount of APR (annual percentage rate) of 10%.
Let’s see how that would look on paper assuming you kept the same balance and only made the minimum payment of $40 a month:
APR: 10% (assuming it stays the same)
Monthly payment: $40
Time to pay off the entire balance: 29 months
Total interest paid: $126
Did you see that?
Assuming you only pay the minimum and don’t charge anything else, it will take you 29 months to pay this balance off completely AND you will have paid another $126 for the pleasure of carrying a balance. Does this seem a little crazy to you? Let’s look at another example with a slightly higher APR of 15%.
APR: 15% (assuming it stays the same)
Monthly payment: $40
Time to pay off the entire balance: 31 months
Total interest paid: $207
You would be paying almost another $100 in interest charges just for keeping that debt.
I am not trying to scare you but only asking you to take a closer look at your finances. It is so easy to use that pretty plastic and never think about it again, but what is it really costing you?
That $1,000 could have bought you some nice clothes or the latest electronics but the consequences are clear. If you have a credit card that charges you interest, you WILL be paying more than simply the ticket price of the item.
So the next time you see a sale for pants or something else that you really don’t need, ask yourself is it worth the extra charge?
It may just save you more than a few pennies the next time you pull out that credit card.
Andrea’s note: I know all too well about those credit card balances, especially the difference a seemingly small jump in APR can make.
Since I’ve stopped using credit cards (because unlike many people, I CANNOT be trusted), I spend a lot more time thinking about what things cost and whether I truly need to buy them. It makes me sick to think of all the money I paid toward interest instead of using it for something I wanted or needed!