I have a pair of Â£50 jeans that I can sell you for Â£750 (yes, just plain blue denim)…
Or how about a Â£10 bottle of wine for Â£275 (no, not vintage, just a regular 2010 Shiraz)…
Ok, what about a Â£20 book for Â£460 (no, not signed by W. Shakespeare, just a regular paperback)…
Don’t think those are such great deals? But you agree to these types of deals all the time when you use your credit card & don’t pay off the balance (in full) each month…
How many times do we say “I’m only going to buy this [you fill in the blank] and then pay it off”. The bill comes & you decide “I’ll just pay the minimum this month, but next month, I’ll pay it all off”…but next month, you charge something else on the card. And the rest is history. Paying the minimum balance becomes all you can afford & 20 years later, you’re still paying off that [you fill in the blank] that seemed like such a good idea…20 years ago.
Perfect example: In 1989, while a freshman at uni, I used my credit card to purchase inexpensive clothes to wear to parties, pizza, and sandwiches. I clearly remember this because I went to school in a small town & there was nothing much else to do but eat & shop in cheap stores. I also clearly remember that in 1997, I was still paying off that credit card…
Just so we’re clear & you know I’m not being dramatic (check this out on any finance calculator/website):
- Â£1200 outstanding balance on a credit card
- 16.9% Annual Percentage Rate (it can be higher if your credit rating isn’t great)
- Â£30 minimum payment each month (this is the standard approximate 3% of the outstanding balance)
- Can take you up to 28 years to repay the Â£1200 AND you’ll have paid at least Â£2,000 in interest
Over the next month, do not use any credit cards unless the answer to the following is ‘Yes’:
- Will I die (actually, not literally) or lose a limb/organ if I don’t purchase this?*
- Will someone I love die (same as above) or lose a limb/organ if I don’t purchase this?*
*Yes, I’m saying if it will not result in death or dismemberment, you don’t need it & you shouldn’t purchase it on your credit card!
Nothing is wrong with wanting something that you don’t need [really…besides food, water, air & moderate shelter/body coverings, most of us don’t ‘need’ anything]. However if you budget for the things you want or literally are dying for…you can just pay cash. And guess what? When you use cash, there are no interest charges!
The goal of the banks that issue your credit cards is to encourage you to NEVER pay them back how would they make money??? They’re not there to be nice. They are in the business of making money not giving it away for free. Don’t believe me…just read the newspaper, visit Greece, check your retirement account, or try to spend US dollars or Euros.