If you won’t have the money to pay for an item when your credit card bill comes in, don’t buy it. Now, I’d like to put that sentence in flashing lights! It’s one rule my husband and I have tried to live by since before we were even married. In other words, if you are thinking of making a purchase on credit, but money to pay for that item is not already in your bank account, do not make the purchase because the money is not going to suddenly appear when the credit card company sends you their bill.
It’s a simple idea, but I have met a few people who feel that owning a credit card means they feel they already have that money to spend. If you do not have the funds sitting in your bank account, the funds don’t suddenly appear and your credit card company doesn’t mind charging you anywhere from 16% interest up to 30% interest on the money you owe them. I just reviewed one of my credit cards that I use routinely for groceries and gas. The standard interest rate on purchases is 19.75%. If I paid only the minimum of what is owed each month and I were to miss paying a minimum payment by the payment due date twice in a year, my interest rate would increase to 25.9%. This has to be one of the worst things to do is pay only the minimum balance on your credit card statement. It’s a fast track to racking up debt. As you can see, the interest rates are higher than any other type of loan.
PAY THE WHOLE THING
The best thing to do if you are going to use a credit card, and there are advantages to using credit, is pay the entire balance when the bill comes due. Another way of not paying high credit card interest rates is carry cash with you. When my husband and I first started out, we always paid in cash. That way we knew what we had in hand and weren’t overspending on something that we didn’t have the means to buy. Yes, it can be a pain to have to withdraw cash, say weekly, and carry it with you, rather than pulling a credit card from your wallet, but until you are aware of what you need to spend each month, it’s a good way to keep track of what is going out. At the time when I married, credit cards were kept for emergencies only and my husband and I had only one credit card each. Emergencies do happen. The roof starts to leak, the furnace breaks down, your water heater conks out on you. This is where your card could be used to deal with a household emergency but try to pay off that balance at the end of the month.
As time went on, we used our credit cards more often because we knew the cash was there to pay the bill at the end of the month and because it gave us a good credit rating. Once a credit card company sees you can pay off your debt when due, your credit rating rises making it easier to then apply for a mortgage or other loans.
Living on one income has to be the thought of want over need. It’s really hard sometimes not to purchase an item for fun, but working hard at keeping your money in your pocket when you start out, will give you the ability to purchase those “fun” items later on and be able to pay for them when your credit card bill comes due.