The Cost of Buying on Credit

If you carry a balance on a credit card month after month without paying down the balance, understanding this concept and what it implies is the most important thing for you to learn. Nothing else even comes close in terms of the long-term consequences for your life. There was a woman who’ss wearing a P625 outfit, purchased on a 20% credit card. She then carries the card’s maximum balance of P5000 for 30 years without paying down the balance. The bottom line: Her outfit ends up costing P36,750.

This illustration drives home the salient point on the cost of buying on credit. The financial consequences of credit card spending are very serious, although many people do not adequately understand them. The illustration in the book describes a realistic scenario. Granted, 30 years is a long time to carry a credit card balance, but many people have carried a credit card balance for the past 10 years, and that is a third of the way to 30 years. Carrying credit card debt month after month can have devastating financial consequences.

If you carry a credit card balance month after month without paying down the balance, there’s hardly anything you could do—short of winning the lottery—that will so significantly improve your financial future for so little effort as making up your mind to gradually pay down your credit card balances. All you have to do is tighten your belt a little bit in the short term and make a commitment to yourself to forego just a little spending, and pay off the credit card debt. The table in the reading makes clear that paying off the balance, while it may seem overwhelming in the beginning, is a manageable task if you make a commitment and stick to it. You will save yourself a great deal in the long term.

Take a moment now to think about your credit card spending. If you are carrying credit card debt, sit down in a quiet place and review your credit card statements for the past three months. Place a star next to any charges on your statement that were non-essential or luxury items, such as treats, impulse purchases, or clothes that you really didn’t need. This exercise can be a helpful tool as you move forward and anticipate future purchases. If you are compounding your long-term credit card debt with unnecessary spending, it will be helpful to curtail that practice as you begin to pay off the balance. Think about P100 spent today on a luxury item purchased on credit, and do the math: Compute how long it will take you to pay off that P100 purchase, and compute how much you will end up paying for that P100 item. For many people, once they fully comprehend the damage they are doing to their financial future by spending on credit, those impulse purchases and treats become much less appealing.

Wait! There’s More: A UK Company is giving £75 or more monthly to small bloggers and website owners. Sign up here for your free account and receive money.