I’ve been itching to write a post about credit card debt for a long time now! As a millennial, I find myself reaching for my credit card a lot. With the cost of living rising and the enormous debt bubble I’ve found myself in, a credit card can seem like the easiest fix. Like Dave Ramsay says, credit cards are the cigarettes of the financial world. They seem to help you with your stress in the meantime, but eventually, you’ll just end up with a big, fat financial illness.
It’s been said that credit cards are slowly being discredited (no pun intended). Credit cards aren’t helping you build wealth, and if you think about it, no millionaire has ever claimed that he/she got rich by paying on credit cards. Personal finance is 80% behavior, therefore engaging in destructive financial behaviors is counterproductive to building wealth!
I came across an article on LendEDU that broke down the credit card process in detail. Below are some of my favorite takeaways from the article.
Credit cards affect your health.
Not sure why this didn’t occur to me sooner but yes, yes, yes! Debt is stressful, man. And most of us are already aware of the effects of stress on our bodies: headaches, muscle tension or pain, fatigue, sleep problems, anxiety, irritability, depression and so much more.
Minimum payments do more damage than you think.
I just learned this recently actually! I thought that by paying the minimum $25 on one of my credit cards each month, that meant I was $25 closer to being done with that credit card. Wrong. Imagine your credit card debt being the Pacific Ocean, and you’re stranded in the middle of it. The minimum payment keeps you afloat for a while, but the fact of the matter is, you’re still stranded.
Next time you make a minimum payment, pay attention to how much is going to your principal (the actual amount you owe on the card). I can tell you at one point, only $3 of my $25 was going to the principal. It was literally going to take me forever to pay off a measly $300 card.
Andrew Rombach, author of How to Pay Off Credit Card Debt Early, mentioned that carrying a high amount of credit card debt for any length of time can be a dream killer, especially if you don’t have an income that exceeds your debt. If it hasn’t already, it will begin to hurt your credit score, especially if your credit utilization ratio is way more than 50%. Your chances of qualifying for any type of loan are zero to none, which could keep a new house or a new car out of your reach. And your credit card payments, which could increase more if interest rates rise, will prevent you from saving for critical goals, such as a college education for your children or your retirement. My goodness! Really makes you think, doesn’t it?
Paying down your credit card principal could earn you more than investing in the stock market.
Interesting point that Rombach made. He wrote that if you invested $200 a month in the stock market, you could expect to earn around 8% per year, which has been its average over time. The same $200 applied to paying down your credit card balance would reduce your interest charges at a rate of 15%, or whatever the APR is. That’s nearly double the return! After a period of time investing in the stock market, you will end up with an accumulation of capital. But after a period of time paying down your credit card debt, you will end up with no debt—another big incentive for never going into credit card debt again.
You can use a personal loan to pay off credit card debt but be careful.
I had plans to do this a little while ago. I like the idea of paying off your credit cards quicker and earlier. And I especially like the idea of consolidating all your credit card debt and lowering your interest. But it’s very important that if you take out a loan, you remain disciplined. If you go without addressing the root problem (overspending or living above your means), then you’ll end up right back in the same situation.
Negotiating with credit card companies is always an option.
Oh, I’ve tried this so many times, and it never worked haha. But if you’re one of those people who’s actually in good standing and can make these types of negotiations, then go for it! Try negotiating for things like due date changes, waiving late charges or lowering minimum payments, if needed. Anything that will help you NOT fall behind will help you big time!
Use your side gigs to help pay off debt.
This is my goal! I want to use the revenue I receive from this blog and my YouTube channel to pay off my debt. I already have a fulltime job, so I don’t need my side gig money to sustain a living. Might as well do something useful with the money!
Put your credit cards away.
Rombach said that someone came up with the idea of putting your credit cards in a baggy of water and placing it in the back of the freezer. The concept being that if the temptation ever arose to use them, by the time they thawed, the urge would pass. Ha, I love this! (Definitely will be adding this trick to my to-do list.) At the very least, I definitely agree that you must distance yourself from your cards. If you feel you have the discipline, you can carry one around for emergencies.
Credit cards can be very tricky if you don’t handle them correctly. Personally, I want to get rid of all mine. They’ve only been causing me more trouble. But, if used correctly, you can maneuver these to work in your favor. What are your thoughts on using credit cards?
Fun fact! Credit cards originated in the United States as early as the 1920s, but the first universal credit card, which could be used at a variety of establishments, was introduced by the Diners’ Club in 1950.
Click here to read the full LendEDU article.