Financial Zip

I worked for American Express for 5 Years as a business card consultant. I learned that what the credit card companies do to take your hard earned money is nothing less than stealing or legalized loan sharking. It can be pretty bad as some of you all know. If you think about it they are just taking advantage of our stupidity and our lack of self discipline. The fact is if we understand how they take our money we can keep more of it and get ourselves out of the hole that a lot of us are in.

Understand the average American has 8 credit cards, $10,000 of credit card debt, and most people pay a very high interest rate on our cards some time upwards of 29%. This is the picture of the average American credit card customer. The Federal Reserve in February of this year reported that our total consumer credit debt is over 2.5 billion dollars. Yikes! Not Good.

It really isn’t the debt that you’re in so the $20,000 total you have on your cards isn’t really doing anything to you. It is the Interest, and Interest Kills Wealth! There is a great quote that says “He who understands interest collects it those who don’t pay it.” Simple as that understand credit collect and avoid it, those who don’t pay a lot of it. That is what we do.

What They Don’t Want You to Know

Interest is what gets us into trouble and here is how the credit card companies position it.
They really don’t want you to pay off what you owe otherwise they don’t make any money that way. So they give you an option to make a minimum payment that is like $15-$20. We justify buying things because the minimum payment is so low and it allows us to stretch out our payments. That is they trap they want us to fall in “Just pay the minimum payment. They don’t tell us that on debts as low as $2000 it could take 15 years to pay off the total if you are making the minimum payment. That is how the banks make their money, and how we get into debt.

The Other Thing You Need to Know

I have experienced this a few times and most people have. You send in your payment on time. You look on the bill the following month and there is a $39.99 late charge. “What?” you exclaim I sent it in on time. Even if you didn’t and you were late that is exactly what these companies bank on. They want to see you late. They then are able to charge you a late fee, and in those impossible to read terms and conditions that they print on the back page allow them to jack up your rate to 20% or more. That cycle will continue every time you are late. Late fee, interest rate hike, and that is how they get you.

The other thing they do is they move the date of payment around and that really screws things up for you. I had a payment due date of the 22nd of the month. I paid it faithfully on the 22nd. What I did not know was that month they changed my due date, now I needed to pay on the 19th. I had to call them up and explain that they needed to remove the late fee and reduce the rate because I paid it on time, and they removed the charge. But to avoid that problem in the future I always look on my bill and find out what the payment date is to avoid that trap. They are very sneaky in that sense and want to maximize there profit.

So a couple of common sense rules would be:

1. If you can’t pay for it with cash don’t buy it. We buy a lot of things on emotion. It is good to institute a rule that if you can’t buy it in cash or pay it off that month don’t buy it. Wait and save it will cost you less.
2. This rule goes along with the first. Put a spending limit on what you can buy. If you can afford $300 in cash there is your limit or whatever the case is for your situation. You just don’t want to put yourself deeper into a hole you can’t dig out of.