Budget Sense

There seems to be so many different creative approaches that people follow in order to pay off their credit card balance. We decided to come up with

$6,500 in credit card balance paid off in 3 months: using one simple strategy

our own in order to eliminate $6,500 in credit card balance. To begin with, it is not that we weren’t already making payments to reduce and even eliminate our balance. We were. In fact, we were often making hundreds of dollars in payments every month if not in the thousands. Problem was 2015 was unlike any other year. It was full of weddings and other family social events that cost us money. Then we had the biggest event of the year and our life: having our first baby and you know they don’t come cheap these days! And if these two things weren’t enough, of course, as a result of having the baby, my wife was on mat leave which meant she only got about 55% of her income. The government did start paying us a monthly benefit for our baby but we had decided that we wouldn’t spend any of it. Each and every cent since his first payment has gone towards an RESP account (and so has every dollar that relatives and friends gave us as gifts for his birth and baptism)

Needless to say, it was a year in which our expenses matched, and even exceeded our income, given all these things we had to deal with. By late September, I was growing tired with paying so much towards our credit card, yet we were barely making a dent into it. As I told my wife, we were taking one step forward, two steps backward.  For example, if we paid $300 towards the balance on Monday, something would come up on Tuesday and had to pay $400 for something or more than one thing (buying something for the baby, a bill that was due etc.) We had to do something about it. By October 1st, the balance was $6500, and we decided that we had to pay the full balance by Dec 31st, or just over $2150 per month. If Dec 31 was here and there was still a balance, we would use money from our savings to pay it off. The idea was that this would force us to pay as much as we can so we don’t have to take from our savings. It would also discourage us from putting any non-necessary expenses or spending on the card. As part of the plan, we also decided to stop putting any money into our savings account and direct it towards paying off the credit card instead. It didn’t make sense to put money in a saving account that pays less than 1% in interest while having a big credit card balance that charges us close to 20% in interest. This redirecting of money that would otherwise go towards saving to pay off the credit card balance, meant that we were now paying double what we were paying in the past.

And there you have it.  All it took was a commitment. But wait, there is more to it. A commitment alone is not enough, unless someone is very strong willed. As part of the commitment, I designed a simple spreadsheet (called it ‘VISA Repayment Plan’) to track our payment progress, starting from the first and middle of each month (i.e October 1st , October 15, Nov 1, Nov 15, Dec 1, Dec 15, and Dec 31) On each one of these dates, we would update our balance and beside it, we would put an arrow: up, down or no change, indicating how much our balance had changed from the previous month. It is amazing what a powerful and magical impact that one sheet of paper had!  We attached it to our bathroom door, so it was always in plain sight, thus reminding us of the task at hand. Just before Dec 31, our balance had been reduced to less than $1000 which we used our savings to pay off! So all in all, with little help from our savings, we managed to pay off $6500 in credit card balance in exactly 3 months. All in a year in which money was tight. As you can see, the main point here is commitment: if you have one, coupled with a clear timeline, and you stick to it, you will achieve your goal. You can apply this same principle to other objectives in your life such as ‘weight loss’ , ‘saving money’ etc.

The expenses never seem to end. But neither does my determination to lower my credit card balance and eventually make it

Taking one step forward and two backward will never help you pay off your credit card balance. You should have a clear plan, timeline and a real determination to pay it off…

disappear completely (balance of ZERO dollars!)

It has been a big struggle to keep our-myself and my wife-credit card balance under control. Just when you thought you have made some progress, comes a wedding or an emergency and you end up putting some or all of the expenses on the credit card. But the more unexpected expenses I get, which raise our balance back up, the more determined I get to bring it back down. It is easy to get discouraged when you are fighting what seems to be a losing battle at time, but it is important to stay focused and resolved.

In other words, instead of taking one step forward and two backward, I want to reverse that and take at least two steps forward and one backward.

Beside being determined and focused, it is also important to have a clear plan and timeline on how to lower or eliminate your credit card debt. Simply wanting to is not enough, especially not when your balance is in the thousands. My own balance, at least when compared to others, is not that big. It is currently sitting at around $3,600. But I don’t like to compare myself to others and give myself a false sense of hope. Just because my friend or cousin has a $20,000 credit card balance doesn’t mean I should feel good about myself for having only $3600 in credit card debt. Such comparisons may be helpful in making some broad generalizations but shouldn’t be used to judge how your situation is. It also works the other way. No need to compare your $20,000 credit card debt to someone else who only has $3,500 in debt or any other amount that is much smaller. It will just make you feel discouraged.

As long as you have a plan, a timeline and a strong determination to win, you should be able to win the battle against your credit card.

And last but not least, I noticed we have developed a pattern that is not very helpful in paying off our credit card balance. Basically, we are more worried about how much room we have left in our CC than what the balance is. In other words, as long as the available credit is enough to get us by or help us make that important purchase, then that all that matters, regardless of how big our balance is.  This is a very dangerous way of thinking about your credit card.

When you see the ‘minimum payment’ (MP) field on your credit card statement, think of it as your credit card’s way of making

Don't fall for the bank trap of paying only the 'minimum payment' on your credit card balance!

you feel good and not to worry. It is their way of telling you “Don’t worry, though you have thousands to pay us, you only have to pay us a fraction of it this time”

It sure makes some of us feel good, that things are not as bad as we thought they were. Let us say your credit card balance is close to $2000, a pretty heavy balance. If your CC company tells you that your minimum payment is only $30, you sure will think it is no big deal and that you can pay it. But problem is, these minimum payments are not there to make you feel good, even though it does help. It is a way for the credit card companies to get you further in dept and at the end of the day earn more interest money from you. Remember, the bigger and the longer your balance lasts, the more interest you will be paying.

It is a trap that credit card companies don’t want us to get out of, despite what they tell you or try to portray as trying to help you pay your balance.  The only good thing about making MP is that it is the limit at, or above which you won’t be penalized by the your CC company.

How is the minimum payment on credit card balance calculated?

There is no standard or universal formula for what the minimum payment is. Each credit card company has their own way of calculating it. Other factors that come into play as well include the balance, the interest rate, your credit standing etc. But generally speaking, the following formula is a good way to find out:

1-Find out your credit card interest rate: Let us assume this is the standard 18%
2-Find out your balance: Let us say this it is $2000

Based on the information above, your minimum payment can be calculated as follows:

($2000 x 18) / 100 =  $360 / 12 months =  $30           (18 is your interest rate)

or

($2000 x 0.18) / 12 = $30

-I generally prefer the second method but it is a matter of preference and what you are comfortable with.

How much should you pay?

Depending on each individual situation, the minimum payment can vary from person to person. If you are really struggling and can barely make a minimum payment, then by all means, that should be your maximum payment. Otherwise and if you are doing OK, it is best to at least double or even triple your MP. So if your MP is $25, try to pay $50 or even $75.  Another way is to alternate each month, with one month paying double your MP and tripling it next month and so on. This way, and assuming your balance doesn’t go up further, you will be paying your payment a lot sooner.

Another way to pay off your balance sooner is to commit to a specific timeline. For example, you can specify 12 months as the time you will need to pay off your balance and bring it to zero. The monthly payments – or those in between- will obviously be bigger but at least you will save on paying more interest.  To be specific, given a balance of $2000 and APR of 18%, you would need to make monthly payments of about $190 to eliminate your balance in one year. This would cost you only $201 in interest for 12 months. Compare that with making only minimum payment of $40 per month. It would take you some 20 years and $3,863 in interest!

So, make it a rule and a habit: when you see ‘MP’ on your credit card statement, just ignore it completely and instead, multiply it by 2 or 3 at least, if not more. That is the payment you should be making.

The following links are useful for helping you calculate your CC interest rates, minimum payments, balance etc:

• http://www.federalreserve.gov/creditcardcalculator/Default.aspx
• http://www.fcac-acfc.gc.ca/iTools-iOutils/CreditCardPaymentCalculator/CreditCardCalculator-eng.aspx

I have talked and warned about ‘impulse buying’ in the past and  recent bank polls re-affirmed and legitimized my warnings and fear: impulse buying is indeed killing the budgets of Canadians.  According to a BMO poll, Canadians spend an average of $3720 on impulse purchases, which include clothing, shoes, electronics and even food (possibly leading to another problem: obesity) Think about that amount for a second. It is a lot of money, probably more than what an average Canadian is able to save a year (assuming savings of 5-10% on a a net income of about $25,000) In other words, halving or eliminating impulse purchases could help those who couldn’t save before, to start saving thousands per year.

Men’s top 5 impulse purchases were the following

1-Dinning Out (53%)
2-Clothing (47%)
3-Books/Magazines (32%)
4-Shoes (29%)
5-Software/apps (26%)

For women, the top ‘impulse purchases’ were”

1-Clothing (66%)
2-Dining out (50%)
3-Shoes (48%)
4-Books/Magazines (44%)
5-Make-up (36%)

So what is exactly meant by ‘impulse buying’? Think of it as money spent on things that you didn’t need just a few moments earlier or at least not right away. It is the purchase you make as a result of passing by a shoe store and seeing a new style you like, but don’t really need because you already have a gazillion pair of shoes. Or that trip you make to McDonald with your coworkers to buy lunch even though your spouse or mom has already packed lunch.  In conclusion, it is a purchase decision that didn’t involve much thinking or time and was made on the fly.

We always knew how dangerous impulse purchasing really is to our pockets but this poll has cemented and legitimized this concern.  Canadian finance and government officials have been warning people not to take on too much debt or risk going the same downward path that the US and various European nations went through. We are constantly being told to tone it down with our debt and save more. But who is listening?  Recent surveys and polls are indicating that more Canadians have started to save money. But debt-to-income levels remain high and in fact approaching dangerous levels.

Needless to say, if an economy or a household wants to decrease the risk of a recession, depression or even bankruptcy, they out to lower how much money is spent on impulse as opposed to purchasing things out of necessity, research or need.

Ways to lower or eliminate ‘impulse purchases’

For some, impulse buying is not a big deal and may be able to deal with it with ease. For others-an ever increasing number of people-it requires more than that. It requires something akin to a therapy.

It starts by acknowledging that ‘impulse purchasing’ is a problem and one that is costing you a lot of money. Ensure that when you go out to a mall or with friends, to only take money that you know you will need and if possible, leave your debit and credit cards behind. Don’t worry, there won’t be an extreme emergency where you will need them right away.  While in a mall or a retail store, observe triggers that lead you to want to buy something. Is it a certain ‘for sale’ sign? is it because the item is featured in the middle of the store? Is it because no one else has it and you want to be the first? Once you identify these triggers, it becomes easier to deal with them and cut them out as a source of your impulse buying.

Another way is to literally take the money that you would otherwise spend on food on other things you don’t need, and set it on a side for one or two weeks. At the end of this exercise, count how much money you have saved, that would otherwise be wasted on ‘impulse purchases’ and then you will realize how much money you are burning.  It helps to physically and literally feel and see the money that you are wasting, for you to appreciate its value.

It also helps to start logging all your purchases and then go through them to determine what can be considered an impulse purchase.  And last but not least, don’t ignore the important of budgeting, the very core of every financial planning or strategy!  Look at your budget. It most likely has little room, if any, for impulse purchases. And if it does, be sure not to exceed it. Note: don’t confuse an ’emergency fund’  in your budget with money allocated for ‘impulse buying’!

In the last three years, dating back to the start of the global recession and the worsening economic conditions, we have been hearing a lot about bankruptcies. Both business and personal. Ignoring the ‘business’ side of things, when it comes to ‘personal’ cases of bankruptcies or being on the verge of sinking into one, a lot of people did find help, by using one of the many ‘debt consolidation services’ that have been popping all over the place.

What is a ‘debt consolidation service’ and when should you need one? better yet, is the service risk-free, and does it involve any ‘side effects’ so to speak?

What is ‘Debt Consolation Service’?

A Debt Consolation Service (DCS) is a method by which a mediator comes between you and your bank to ensure that you pay some of your debt, at a reduced interest rate, so as to avoid bankruptcy.  It is a process where your multiple high interest and unsecured debts are consolidated into a single manageable monthly payment, usually at a lower interest rate than what you were paying the banks.

The logic behind such an arrangement is that it is better if you (the consumer) pays some of the money owed to the bank than to declare bankruptcy where neither you nor the bank will gain.  When you declare a bankruptcy, your credit will be ruined and will take years to come back to normal and the bank will also lose on its own money that it lent to you.

So the DCS is sort of a middle man between you and the bank. Not to mention, it is a legal solution. But just because it is legal and viable doesn’t mean you should just run to use it. First, you have to know when you need to use it and what are some of its risks and side effects?

When should you need to use a DCS?

There are many signs that can help you in knowing when it is time to use a debt consolidation service. If you have lost your job yet still have to pay off multiple credit cards-and assuming your job search is not successful for a few months now-it may be time to talk to a conslidation service. If you are also noticing that you are missing your payments more often than usual, then that could be a sign that you are falling behind and need help. Getting lots of daily collection calls? that is another strong sign that things are getting out of control and in need of help. Finally, one other strong indication that you are in need of consloldating your many credit card debts into one is when when you start using your credit card to pay other credit cards or bills. If you start noticing some of these symptoms or similar to those, it may be time to consider DCS.

When are some of the risks and side-effects?

While DCS can be a great life-line, it wouldn’t come without some risks and side-effects. Where else in life could you get such sweet deals without having to pay for it some other way? First and foremost, your credit rating may be effected for the negative. As part of your repayment arrangement, you will also have to give up your credit cards and possibly other bank accounts.  Also, the service is only good for unsecured debts , those not secured by an underlying asset or collateral. In other words, you couldn’t use DCS to make your mortgage payments when you are not able to.

When we hear of Greece, images of beautiful beaches and islands come to  mind, if not all the great philosophers it gave the world. Unfortunately, as of late, hearing the word ‘Greece’ instantly brings images of people protesting in the streets, youth rioting in front of the parliament in Athens and other images of chaos.  The Greek debt problems have been so devastating that they are threatening the entire economy of the European Union and sending its shock-waves across the Atlantic, all the way to North America.

Personalizing Greece for you as an Individual

For an economy as small as Greece to be able to have such an impact on other global economies tells you the chaos the world is in.  But putting that macro-analysis of this whole issue on a side for now, let us focus on the micro version of it and how Greece’s economy and all its problems is a major warning to all of us as individuals.

How many times have we preached on this website about the important of budgeting, paying down your debt, saving and generally living within your means? A lot! In fact, it is not just this website. You hear it everywhere these days.  In his new republished book “The Wealthy Barber“, for example, author David Chilton stresses the need for these basic principles of finance for someone to be able to afford life or to make it to the next level and be wealthy.

In Greece’s example, the government has been operating on debt for years and they have finally run out of all money to the point where they could declare a default on their obligations at any moment. Europe has been called to bail their Greek cousins.  What went so wrong? lots of things, mainly the government and the people’s habits of operating beyond their means. I have lived in Greece and it is a lovely country with some lovely people. Greek people love to party and generally have fun. But so do most of humanity. I don’t know of anyone that will tell you “I hate fun.”  We all like to have fun, but at what expense? to have fun for 5 straight days and only work two days just doesn’t cut it.  Sooner or later you have to face the reality of your finances. You can’t expect to live a luxury life at the expense of the government forever.  That can only be possible in such places like Fantacyland or Dreamville.

North America-yes this includes Canada-should take Greece as a major wake-up call and get its act together.  Sooner than we may think, Greece’s debt issues may take its shadow across the Atlantic and blanket us here too.  But we do have time and can do something about it.  At least here in Canada.

How to protect from the Ghost of Greece?

Live within your means

First of all, and it is getting tiring saying this, it starts by living within your means and not beyond them. If you do live beyond your means, you may not notice the consequences immediately.  The fact that we don’t immediately feel the dangers of living beyond our means is one of the worst illusions of personal finance.  We think everything is OK until it is not and that is when it goes to hell in a basket. You have to recognize this: you don’t go from good to bad standing order immediately. In between, there usually is some calm before the storm. This calm is something to watch out for.

Save Money

If you don’t save your money it means you are either spending it all or paying some of it to erase your debt. Which also means that you are one paycheck away from disaster. Do yourself and your family a huge favor and put some money away from every pay for a rainy day. If you are turned off by the term ‘Rainy Day’, ok let us call it ‘major future investment’, be it a new car, a course, or even a mortgage on a new home.

Pay down your debt

To avoid being in the same situation that Greece is in, make sure your debt doesn’t keep piling. It is OK to have some debt but to let it pile on and on, then we’ll have a problem. You have to literally say to yourself “I have to stop my debt here and now” and act on that command! Paying down your debt will mean that you get to save all the interest that would otherwise go to a bank.

What have you learnt from Greece and what it got itself in? I hope a lot, if not, you could be the next Greece and that is not a good thing at the moment.

The financial world and the stock market have been rocked by the downgrading of the US credit rating by Standard and Poors.

Given the poor state of the US economy and the government’s recent infighting to reach a consensus regarding the debt ceiling in a short time, have all spelled an end to the United States close to 100 year of the maximum triple A rating down to a double A rating.

This is huge and unprecedented!

It is the personal equivalence of your credit rating being downgraded by your credit card company or bank, which as you may have guessed, results in harder and higher costs of borrowing to you.  This is exactly what happened to the United States and this can in no way be good for their already ailing and fragile economy.

So if this can happen to the United States, you can bet it can easily apply to you and me as individuals.  But what can you do to ensure it doesn’t happen to you? the short answer is, don’t go into debt and stay away from credit cards. The long answer? well let us go through a checklist:

• Live within your means: the US has been living beyond its means and budget for decades now, trying to fund two wars and lots more with borrowed money. Are you doing the same? are you spending more than you are taking in income? If you are, stop and change your budget right away!
• Eliminate your debt: Yes I know, it is getting tiring to have to hear this all the time, but that is the point! Sometimes we need to hear and read about something more than once or twice before we fully get it.  The US has so much debt, some government officials were thinking as far as defaulting. Yes, the United States was thinking of defaulting! What is this world coming to?
• Save Money: When you don’t have to spend your money on paying back your debt and the interest on it, you will have money to save and invest.  And when you have money saved, the future will no longer be as scary or uncertain, even in the unfortunate event of losing your job.  Saving money will help you not just for that rainy day but also to make big purchases such as a car, new furniture or even the down-payment on a new house.
• Pay your bills on time:paying your bills on time is easier when you have a job. But even if you don’t have a job, you should still make it a priority to pay your bills on time. If you are unable to, speak to the company and find alternative arrangements.  Paying your bills on time will not just save you from paying interest. More importantly, it will help you in maintaining a good credit down the road, which will come in handy when buying a house or car.

If you want to be seen as very trustworthy in the eyes of financial institutions, you have to start treating money with a little more respect and care.

You may look at the concept of ‘credit rating’ as your resume to the financial world: they will judge whether they should borrow you what you need-and how much interest to charge you-based on what they see on your financial resume. So be sure to polish your financial resume.

Needless to say, applying the above will help you maintain a good credit rating and that will make it easy to buy that new car or house in the future.  Furthermore, having a good standing credit history will help you stave off bankruptcy which is the last place you should think about, let alone get to!

The on-going ‘debt ceiling ‘ crisis in the US is a great example of why we need to have a budget and live within our means.  If the government of the United States of America-the most powerful government of the most powerful country on earth- can’t meet its financial obligations due to ever increasing spending, you bet that this could easily apply to us as individuals.

We have all been watching or following the ‘debt ceiling’ debate out of the US, with the congress’ arguing back and fourth as to whether they should raise the ceiling or not. As we speak, there is talk that an agreement has finally been reached, which we hope is true and will bring some relief to the markets.  For those wondering or confused by what this whole debt ceiling thing means, think of this as a decision of whether you should increase your credit card limit, to be able to cover more expenses.  While you may be able to increase your limit, at the end of the day, it is not your money and you have to pay it back.  This is a micro-version of what is happening in the US.  The bills are due and there is no money to pay for it anymore, so they are forced to raise their limit on how much they can borrow (or print) to pay their obligations.

What lessons did we learn from all of this?

But let us talk about the real issue here. What has this discussion of debt ceiling talk taught us? Probably a lot of things about the state and shape of the US economy, but most importantly about the basics of budgeting and finance.  Let us go through some of them.

Lesson 1:  Live within your means!
No matter who you are, what you have-even if you have the luxury of  printing your own money at will-if you don’t live within your means, sooner or later, your debt will catch up to you. If these basic lessons of budgeting apply to an entity as great and as rich as the US government, you know they will easily apply to us as individuals and families. And we sure don’t have the ability to print our own money as the US government does, so it should be even tougher.

The US has been accumulating debt by widening the gab between how much it earns and how much it spends, for over a decade now.  Sure, they may have increased the limit again now, but it remains to be seen whether congress will address the real issue here: to cut spending.  The republicans were delaying passage of the bill until they got guarantees of massive cuts totalling trillions in the next 10 years.  I believe that is the right way to go about it.  Although it still doesn’t make sense to me and many others how you can cut spending while still increasing the debt ceiling cap. It is one of those ‘one-step-forward-two-backward’ type of thing. Not to mention, the new agreement that has been reached doesn’t contain any ‘tax increases’ or at least that is what we have been told by congress.

Lesson 2: Make the Hard Financial Decisons Now!
Another valuable lesson to take from this is that you can’t keep putting off taking important and hard decisions and letting later generations deal with them. Had the US started tackling this issue over a decade ago, things would be a little less chaotic and more under control by now.  Let us not shift all the responsibility to our children and grandchildren. Let us start taking responsibility now so that they can enjoy a better future themselves.

Lesson 3: Be Accountable and Take Responsibility
This US  fiasco showed the basic lack of any real accountability or government oversight over something as important as this. You would think that issues related to bankrupting a whole nation would be studied, debated and researched more carefully, but doesn’t seem to be the case.  If a private sector employee was to cause so much losses for his company, he would be fired in an instance. With governments, this may not necessarily be the case and accountability is not easy to be assigned. For one thing, accumulating debt takes years and sometimes even decades, by which time politicians have changed and new faces have taken over.  Governments need to debate, question and scrutinize big projects (pensions, medicare, social security, wars etc.)  that cost so much money and all those involved with them (politicians, consultants, corporations, contractors etc.) Just because it is the government doesn’t mean you can rob them or charge them an infinite amount of money.

Lesson 4: We need better Leaders and Thinkers for the future
And last, and this all goes back to the basics again: governments, in cooperation with various business and academic institutions, need to do a better job of producing and graduating people that are highly qualified for the job, that think for the long term and are not just interested in getting re-elected. This is an area of vast importance and can’t be ignored, otherwise we will be back to this trap once again soon. If you read the terms of the new deal reached between the democrats and republicans, one of the conditions that the democrats have demanded is for the debt ceiling issue to be dealt with now and not have to face it till at least 2013 or after. To me, this  sounds more like a clause to save Obama’s political future and help him get re-elected in 2012 than a real and sincere conern about the American people.  In 2001, following the Enron and various other scandals, there was a lot of discussion about the importance of ethics in business and politics. Ten years later, I wonder if we have gotten even worse?

While we don’t know what would have been the real consequences of the US defaulting on its debt, we do know it would have been real bad, both for the US and the global economy. At a time when we are trying our best to come out of a recession, this (debt default)  is the last thing you want.  According to how some described what the consequenes would have been, this could have been an ‘Economigeddon.’ We are just glad an agreement has been reached at the least, but the real work hasn’t started.

So kids, adults or anyone else reading this, let us take a very important lesson from all of this: if, even the government of the United States is not immune to this, who are you to think you are invincible? get your finances and debt in order so you don’t have to face a chaotic and uncertain future.

Start now by creating your first budget, paying off your credit card and other debt and get used to living within your means.

Here at Budget Sense, we almost always recommend against credit card usage, unless in extreme and desperate situations.  But of course, credit cards can come in handy in certain situations. But they can also be abused by being used to buy things that just don’t justify the purchase.

What are some foolish ways of using your credit card? let us go through them and explain why they don’t make sense from a financial budgeting and debt point of view:

Using  a Credit Card to buy something expensive when unemployed
When you don’t have a job, the last thing you should think about is buying expensive stuff, let alone using your credit card to make the purchase.  Sure, you may not have the money and is easier to put it all on your credit card. But during a time of need and no steady income flow, the last thing you want to do is buying something you don’t need and probably only want. Put it off for now, and buy it when there is a steady flow of money coming from a stable job. Or, you can start saving for that big purchase, little by little.

Using one Credit Card to pay for another
This is a classic one, and most of us are probably guilty of doing it one time or another. This is like covering the a hole in the ground with mud from another hole you had to dig right next to it.  Some resort to this tactic when one credit card is completely maxed out and is due, while the other has a zero or little balance to speak of, so makes the transfer easier. But regardless, in the long term, this doesn’t help and will probably lead to both cards being maxed out and costing you a lot in interest payments.

Buying things when you can’t even pay your bills
So you can’t even pay off your bills on time, yet you are using your credit card to buy a new pair of shoes, a new gaming console etc? Your priority at this time is to save and come up with some money to pay your due bills and not use a credit card to buy things that are not necessary.

Using your credit card like an ATM machine
This is generally referred to as  “Cash Advance.”  This is another classic example and one of the worst.  That is to simply withdraw cash from your credit card, where the interest rate can be ridiculously high. Again, unless you are in extreme need, it is best to avoid this at all costs.

Using your credit card until you maximize your balance
Some people will keep using their credit card until they have maxed it out. It is like they can’t stop until they have exhausted their balance and there is no room left.  The idea is not to maximize your balance, but rather to keep it to a minimum or even zero.

There are many more examples of foolish ways to utilize your credit card, but this list simply demonstrates some of the most common ones.  A credit card is a way for you to buy something and pay for it later, ideal for situations when you don’t want to pay right away. But to use it to pay for something that you know you won’t be able to pay it back later, doesn’t make financial sense.  Credit card companies have done a great job in conditioning us to use these plastic cards like some sort of bank where you can purchase and spend with no second thought about future implications. It is time to rethink that and treat your credit card as you would your most sacred and dearest things to heart. If you don’t respect a credit card, you will end up paying dearly and probably for a long time to come.

I have an admission to make and please stop me if you have been guilty of this same feeling or thinking as well: there are times when I don’t feel an extreme rush or urgency to pay off my credit card balance simply because there is no visible harm being done. Accumulating interest rate? who cares, it is only a few bucks every month. Bad credit? that is another thing we forget to worry about just because we don’t get to see its impact on a daily basis. Worse yet, some of us have stopped worrying about paying off our credit card debt because what is the point, sooner or later, we will max it out again.

So might as well just use our credit cards as we fill up our cars when the gas is expensive: simply top it up and pay as you go. Never filling it up.

Welcome to the new generation that never worries or loses sleep over their credit card debt. It is never a bad thing when you don’t let stress get to you, but in this situation, it may be good to feel some stress and urgency to pay off your credit card debt (and other debt for that matter.)  I am sure credit card companies love this new generation: it will just mean more interest being paid.

If you don’t pay your credit card balance on time and still not feel any guilt, there is something wrong. Sure, you may not have the money to pay it, but that doesn’t mean you should be OK with the situation.  If anything, you should have a plan in hand to pay off your credit card balance or at least reduce it to a manageable sum.

If credit card debt doesn’t bother or concern some people, it means that taking on big items that they can’t afford, will probably not bother them either. Be it a brand new car, a big house or a trip out of nowhere to a place out of this world.

This is akin to a society where more and more people are not bound by the rule of law and order or the police. In such a society, chaos and problems will ensue and a whole collapse of the system is possible.  The same applies here, when more and more people are no longer bothered by their credit card and other financial obligations, and in fact are fine living with it. Such a society can’t be sustained and will eventually come down crashing. It is already happening in one form or another in the US.

Pay off your credit card debt and save yourself hundreds if not thousands in interest every year. So why refuse extra money that can be in your pocket?

If you don’t want to be bothered by your debt, there is a simple thing you can do: pay it off and stop using them as much as you can. Kill your debt before it finishes you.