It has become commonplace to use credit cards when you don’t have cash – everyone does it. Just pull out your card and buy whatever you want – real easy! In reality it’s not quite so simple.
The bank or store that you got the card from is in effect giving you a loan. Each purchase you make with that card is bought with money you are borrowing from them. In a few weeks they will send you a bill and you are expected to pay back the loan. The best thing to do at that point is pay the bill in full.
Your statement may say that there is a minimum payment you are required to pay, often a small percentage of the total amount. Be very wary of those small minimum payments though. It may be more affordable to only pay that small amount, but this is often where people’s problems with credit card debt begins.
When you only make a minimum payment on your credit card bill, a fee, called an interest rate, is added to the bill. This fee increases the amount that you originally paid for the product. The trap of minimum payments is easy to fall into. It looks easy to pay back such a small amount, and it is tempting to make more purchases, assuming that the minimum payments will remain affordable.
So now they have several bills totaling a large amount of money that they can’t afford. Plus the credit card company is adding interest to all of the bills. The longer the bill goes unpaid, the more you will pay in interest until you owe much more money than the products were ever worth. Imagine buying a product, using it until it’s worn and throwing it out. But because you’ve only made minimum payments, you are still paying for a product that you no longer own.
We all need a little treat or a pick-me-up on occasion. Sometime this makes us feel better and sometimes it only fuels the fire for more spending. If the first purchase didn’t cheer you up, emptying your wallet to the last penny will only make your problems worse. It’s better to take a walk in the fresh air. If you still want to spend money, look for good bargains and discounts, and stop at one purchase.
If you must, use your credit card to buy what you can afford, and avoid the minimum payment trap. Pay the bills as soon as they come in, preferably the whole amount due, not just the minimum payment, and you will be able to use your credit card responsibly without getting into trouble. Your credit history affects your ability to get a mortgage or a loan for a car. Missing payments on your credit cards will adversely affect your credit record, so make sure you don’t fall behind.
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