Carrying Balance Increases Cost Of Credit Cards

Sunday, July 4, 2010, AM | 5 Comments

While it’s best to pay off your credit card bill every month in full by the due date, we all know it’s not always the easiest “ritual” to do in life. However, many more folks are unaware – a lot more don’t even wanna know – how much their credit cards cost in terms of interest. That’s in addition to some people’s free spending “to their teeth” with no end in sight even in these hard times.

If you are going to carry a balance, you have to make sure the amount you owe is within your means and be able to eventually pay it off completely – preferably sooner than later. The interest is your cost of capital when you make a purchase but unable to pay it in full. However, when you pay bill in full, you acquired a loan for at least 3 weeks with no interest whatsoever. Can you believe that? In America? Getting a loan for 3 weeks with no interest. Is this the best country or what? What a country!

Downside of carrying balance

When you are unable to pay in full by the due date, you must devote a portion of your monthly income – and sometimes a significant portion – to maintaining or paying down the balance. In other words, over the years, the interest part of the balance can chew up part of your income that you could have used for something else instead of filling the treasure chest of the credit card issuer.

And because of this, flexibility in your financial life is increasingly diminished. A time comes that you are completely in the grip of the credit card company. You become a slave of your own free spending habits. When you work, you would be lucky to pay off just the interest every month. Eventually, you then start thinking about bankruptcy.

If you have to pay off previous purchases, you will be handing over your pay to a credit card company, instead of putting it toward your goals – such as saving for retirement. Not only your present financial life is in disarray and you become disoriented but you can forget about any chance of living a decent life in your retirement. On the same token, however, your positive action today will benefit you in the hereafter life. I mean retirement.

In a Nutshell
When you pay your credit card bill in full each month, you will have more money to save and invest. Granted interest on savings account is extremely low but paying exuberant amount in interest is no way to budget your expenses either.

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