The Shocking truth behind Credit Cards and Credit Card Debt
Updated: Jan 27
Too often, the Wise Financial Man hears about people falling for credit card advertising, credit card rewards, and the shiny attractive credit cards themselves. I mean how cool is it that credit card companies send you, a letter addressed to your name, with credit card offers saying you’re pre approved with the latest and greatest rewards. Something like… Get free airline miles for signing up, spend $2500 to receive a free $200 dollar gift card, no interest on the first 3 months, you get the picture. And the best part… It cost you NOTHING! Well Wise Financial Man is here to tell you, You are absolutely WRONGGGG!!!”.
The Truth Behind It
Have you ever wondered why credit card companies provide such generous offers and rewards? Why they are willing to give you free money, vacations, airline miles, etc. for signing up with them and sometimes requiring you to spend (x) around of money? As the old saying goes, “If things seem to be too good to be true, typically they are!”.
Credit Card companies know people have damn near zero self-control when it comes to managing their spending. And that last little bit of self-control disappears once they have their hands on that magical piece of plastic that lets you purchase just bout anything with a single swipe. People often fall into that mindset that they’ll purchase what ever there heart desires now, and will pay it off later with money they don’t have. I mean how nice is it to get that new Nixon watch, pair of Lucky Jeans, Nike shoes, Apple iPhone, you get the idea, all now with a swipe of a credit card. No waiting for the next pay check, earning rewards as you swipe, all with the ease of using a little piece of plastic. That’s exactly what credit card companies want you to do.
So By now you may be asking, “What’s so bad about that Wise Financial Man?”. I mean your getting free things to spend money right? May be, but you are also racking up hundreds if not thousands of dollars in credit card debt, literally falling right into these large credit card companies trap. I’ve often seen rewards offers on credit card advertising such as earn1, 2, or 3 percent back on (you name it) purchases. Well that seems pretty nice right? Well what they aren’t telling you is once you can’t pay your balance off, these companies are going to began charging you interest on your credit card debt. These interest rates are usually ridiculous, typically varying from 13 to 25 percent. Now if you miss your minimum payment or pay it late, add another ridiculous fee on to all of that interest.
Welcome to the credit card debt club! Where you are literally a financial slave to these large credit card companies. By the way, these companies were hoping you would fall into their plan this whole time! It’s how they make their income, off of you! You are literally their income producing assets! Every week, you do your 9 to 5, working your ass off, putting in 40 hours if not more, only to come home and pay these companies their minimum payments, making zero progress towards paying off their balances. And sometimes end up owing them more!
People need to learn about these large credit card companies traps. To avoid these companies like the plague if they can’t manage to have self-control in terms to their spending. Here’s a thought… if you can’t manage to pay your balances off every month, you don’t need a credit card! Who cares about that measly 1 to 3 percent interest they're paying you to swipe that credit card, when in return you’re going to owe them that 13 to 25 percent interest back on any balances you can't pay off. Personally weighing the scales, I think these credit card companies have the better deal. But if you’re reading this article, there’s probably a reason why. You’ve probably already fallen for their traps, with you being just another one of their financial slaves providing your hard earned dollars to these credit card companies. Don’t panic, I fell for the same traps too!
Getting out of the Credit Card Debt Trap
So you may be thinking, “What now Wise Financial Man? I’m already working my ass off, trying to pay these credit card balance minimums, and are making zero progress!” Luckily for you, I’ve already been in the same boat and have gone through the process.
QUIT USING YOUR CREDIT CARD
CUT ANY AND ALL EXPENSES YOU CAN
PAY OFF MORE THAN MINIMUM PAYMENT
ANY EXCESS MONEY GOES TO CREDIT CARD DEBT
PICK UP A SIDE GIGS
ELL THE RANDOM THINGS THAT NEVER GET USED
REPEAT STEPS 1-6
STEP 1: QUIT USING YOUR CREDIT CARDS: You will never be able to pay off your credit card debt, if you continue to rack up debt. The first thing I highly suggest doing is shredding any and all credit cards. I can attest to the benefits of doing so. Far to often I found it too tempting to swipe that magical little piece of plastic in my wallet when I didn’t’t have the money to pay for something. Whether a date night, clothing, toys, vacations, you name it, all of these business will happily swipe your credit card accepting it as payment. Only once I shredded my credit cards, did I really become to make some aggressive progress. If you are managing to pay off 50, 100, 1000 dollars, and then go rack up more debt that you just paid off, you are literally just digging your self in a deeper whole. And what’s worse are the people that just open another credit card account. Why in the earth would you do so when you are already in one trap. QUIT USING YOUR CREDIT CARDS!!!
Step 2: CUT ANY AND ALL EXPENSES YOU CAN: It’s time for you to put in the hard work. It’s time to cut your spending. No more eating out! Cut down on your date nights to one night out a week, only if you can pay cash and afford it! Eliminate all unnecessary purchases such as clothing, watches, shoes, purses, etc. Get rid of any reoccurring expenses you don’t absolutely need to have. This includes cutting the cord, cancelling subscriptions, saying bye bye to that gym membership you never use, etc. Obviously you need to pay for your utilities, groceries, and other basic survival needs. But anything else not contributing to your basic survival needs needs to go! And NO, DirecTV does not count as a basic survival need! As you begin to implement step 2, cutting expenses and getting rid of reoccurring expenses, you will notice a lot more of you’re money freed up.
Step 3: PAY OFF MORE THAN YOUR MINIMUM PAYMENT: You need to begin to pay off more than the monthly minimum payments on your statements. The reason you’re making zero progress on your credit card debt, is because when you pay the minimum payment, you are essentially paying only the credit card interest off on your outstanding balance. Often you will see something like:
Due Date: 01/01/19
Credit Card Balance: $8,000
Minimum Monthly Payment: $200
But what you don’t know, is of that $200 minimum payment, only about 20 to 40 dollars of that is going to your actual credit card balance. The rest of that payment, that 160 to 180, is credit card interest going straight into their pockets. So lets do the math:
$8000 / $200 = 40 MONTHS or about 3.3 YEARS!
But wait… Remember out of that 200 dollar a month credit card minimum, only $40 is going towards paying off the actual balance. The other $160 is interest going into the credit card companies pockets.
So redoing the calculation, it would look something like this:
$8000 / $40 = 200 MONTHS or about 16.6 YEARS!
With an estimated $160 x 12 months = $1920 a year in interest owed.
You are better off paying off more than the minimum payment. You will notice yourself begin to make progress much faster paying off that credit card debt balance by paying more than the minimum . On top of it, long term, you will end up paying less interest. Let’s see what it would look like if the Wise Financial Man paid off 400 a month instead of the 200 dollar minimum credit card payment:
$400 payment - $160 interest owed = $240 going towards actual credit card balance.
$8000/$240 = 33 MONTHS OR ABOUT 3 YEARS.
But wait, you’ll actually pay if off quicker if you continued to make the same $400 dollar a month payment, month after month, until it’s paid off because you will continue to pay less and less in interest as you pay off your outstanding credit card debt balance!
The point I’m trying to make here is to follow Step 3, and continue to pay off more than the minimum payment. Long term you will end up paying less in interest while reaping the benefits of paying off your debt in a year or two as opposed to 16 years.
Step 4: ANY EXCESS MONEY GOES TO CREDIT CARD DEBT: This ties back with Step 3! Any excess money you have sitting on the side free needs to go towards paying off your credit card debt balance. By doing so, you will pay off your outstanding balance exponentially faster while managing to pay less in credit card debt. It’s a win win.
Step 5: PICK UP A SIDE GIG: Many times, a side gig can be an excellent solution! Yes you may be having to work more, possibly having to deal with more stress… but in the long term, you will have more income resulting in more money free, allowing you to pay off your debt faster! You have to decide whether it’s worth it for you to hustle now, reaping the benefits down the road of having less if not no debt. The Wise Financial Man would have to argue it’s worth it. Just remember to save money for your taxes as your tax bracket may change depending on how much you make. Another side note is think about how much wealthier you’ll be by not having to pay all that credit card interest over and over again for the next 16 years by cleaning up your debt now! Sounds like a Wise Financial Man’s decision to me!
Step 6: SELL THE RANDOM THINGS THAT NEVER GETS USED: All too many times we all purchase and collect things we never use. After spending money on something we thought we had to have, we find ourselves stuffing it in the garage, spare bedroom, etc., to keep it out of the way where it collects dust. Wouldn’t it be nice to have all that space freed up knowing you could actually walk in to your garage or use the spare bedroom or office for its intended purpose. All while making money, selling this items you never used. Many times people find out they have hundreds if not thousands of dollars in random stuff that they could sell on craigslist, eBay, offer up, and all of the other platforms out there now days. Now imagine taking the money from selling your items, and throwing it at that credit card debt! You may not of needed that random stuff… but you could SURE USE THAT MOENY!
Step 7: REPEAT STEPS 1-6: Getting out of credit card debt is a tough road ahead for most. You may not be able to get our of debt as quick as possible, and that’s okay! Just remember to make smart financial decisions day after day, repeat steps 1-6, have little bit of patience and self control, and you will be on your way to paying off that annoying credit card debt balance!
I hope the Wise Financial Man has been able to reveal the honest truth behind credit cards and credit card debt! As tempting as those offers may seem when they arrive in your mail box, remember all the negatives that come with that magical little piece of plastic. Remember once you’re in debt to these companies, the work and sacrifices you’ll have to endure to get out. And if you’re like the millions of Americans carrying thousands upon thousands in credit card debit, remember you’re not alone. With the steps above, some hard work and sacrifices, you’ll be on your way to getting out of the credit card debt trap and being on your way to financial freedom!
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