Credit Cards and Thrift
The easiest way to save money has always been to not spend it. That sounds like something that Yogi Berra might have said, yet it is still true.
Kiplinger’s 20 Ways To Waste Your Money
The financial gurus over at Kiplinger’s came up with this list of the least thrifty things that you can do. It is a great list, in part, because they list paying credit card interest at #2. Unfortunately, they do not truly explore all of the money you waste when you do not pay off your balance in full. As they see it, “If you have a $1,000 balance on a card charging 18%, you blow $180 every year on interest. That’s money you could certainly put to better use elsewhere. Get in the habit of paying off your balance in full each month.” In fact, the savings go far beyond that mere $180. If you fail to pay a credit card bill in full, you not only pay interest on the balance, but you begin paying interest from day one on all purchases made since the statement closed. Where you once had a grace period of up to 50 days or so, you know are getting hit with charges the instant the purchase is made. Worse, not paying the last month’s bill in full allows them to start charging you interest on this month’s purchases that you already made! The impending prohibition by the CARD act of “double cycle” billing will take some of the sting out of paying interest on your credit card, it will still be much worse of a deal than it looks, not that 18% interest looks that good anyways. Who would take out a mortgage or car loan at 18%?
Once you calculate the real cost of the interest payments, you are still neglecting the reward card factor. If you pay interest, you obviously need to find the card with the lowest interest rate. If you know that you will never pay interest, you are free to find the card with the greatest reward. 2% on all purchases is now the gold standard for rewards, available from the Schwab bank card and others. Higher cash back rewards are available from other cards on specific purchases. To some, the frequent flier miles are a better deal. Either way, you are forfeiting significant rewards by paying interest as a consequence of using the lowest interest card rather than the best reward card.
Credit Cards Can Work Against You
I came across this article in the New York Times about how subscriptions are being pushed harder and harder by companies out there. The worst ones are when there is fine print that allows them to charge your credit card in perpetuity. I try my hardest to avoid all recurring monthly charges. I like to add them up to a year, and then figure out how much of my pre-tax dollars I am spending on anything I sign up for. I can’t cancel my gas or my electricity bills, but I did end up canceling my cable TV once I realized that it was the equivalent of about $1,000 of my annual salary. I realized that I was able to better spend my entertainment dollar elsewhere, and I cut the cable. With that in mind, there are few good deals out there that charge your credit card every month, but lots of scams.
Speaking Of Scams
Here is a report about a credit card with a 79% interest rate! Amazing stuff, but not when you consider the triple digit interest rates at pay day loan stores or furniture rental places. Is this where the credit card industry is going?
