Yesterday I wrote about living below your means and for many a big part of that is to not falling into the credit card trap. At this point I’m sure some of you are already nodding in agreement or even cringing. The credit card trap is where you get a card and you start using it as if it were cash in your wallet. Then instead of treating it for what it is you simply put money onto the card just to keep using it; like a revolving door.
Personally I’ve fallen into the credit card trap a couple times, mostly because of how easy it is to spend money using these little plastic monsters. The worst part of falling into this trap is that the bills you get each month really should jolt you into reality with their insanely high interest rates, but they don’t! They don’t because the interest has been cleverly broken down per month. Even if you’re carrying a $5,000 or even $10,000 limit your interest might be as low as $100/mo and your minimums payment at $150/mo if you’re on a low interest card and maybe double that if you’re not. This doesn’t seem as bad as if you saw the real numbers, for example on a $10,000 card with 18.9% interest you are paying $1,890 to the card company each year.
What happens when you max out your cards while living in the credit card trap is that you end up paying the minimums, maybe a little bit more, because that’s all you can possibly afford. Then what you do is plot and scheme just how much extra room, or available credit, you have left on the card for you to use right back up. When I fell into the credit card trap I put myself into almost $25,000 in debt, which I was able to float, meaning that I could pay my minimums and maybe a little more but that’s it. Years later I’m still carrying a chunk of that debt and that’s something many people who fall into the trap end up doing.
Unfortunately the credit card trap is deceptively easy to fall into because of low interest rates and low limits. I first fell into the trap with a $500 limit with 9.9% interest. That card became a $10,000 monster before long. The challenge is once you’re in the trap you need to get out and the only way to do that is to stop using the cards. Mine have a permanent home in one of my dresser drawers and only come out when I truly need to use a credit card or just in case of an emergency. It’s a slow process but knowing that the credit card trap exists is the first step, the second is just not using the cards!
[tags]credit card, credit card trap, interest[/tags]