In between overdoing it

balanceI have a secret to tell you…it is a lie that people have been told for a longtime. We have all been fooled and it is leading us down a bad road with disastrous results. It’s called revolving balances.

Not what you were expecting? That’s kind of the point.

What is a revolving balance?

According to Wikipedia “A revolving account is an account created by a lender to represent debts where the outstanding balance does not have to be paid in full every month by the borrower to the lender.”

In other words, when you borrow money and don’t pay it back on time. The balance revolves or rolls over to the next period of time, usually a month. The longer you keep that borrowed money, the more you have to pay in the form of interest. Why is this bad? When you look at a credit card commercial, banking materials or speak to most people they are under the impression that a credit card is not a loan. That it is just like having cash. It is not. This false mentality is what is having disastrous effects on our household finances.

By using our credit cards we are “borrowing” money. This money still needs to be paid back to the lender.  For some reason in our society there is an inability to associate credit cards with borrowed money and it is taking many households by surprise. The longer you revolve a balance the more interest and fees will accrue and the longer it will take for you to pay it back.

Here are a few ways to shift your thinking and get control of your revolving credit card balances.

 

  1. Shift your mindset to stop associating credit cards are not cash. This is not your money, despite what the credit card companies and banks say. This is their money. You are only borrowing it and must return it eventually.
  2. Don’t stay in the state of denial– You are sent a disclosure (that no one reads) and new laws have forced credit card companies to spell out your interest rate and how long it will take to pay your bill if you only pay the minimum. It is your responsibility, to be aware of the terms of your agreement when you “borrow” this money.
  3. Recognize that credit card companies are in the business to make money – It’s not a bad thing just but something to keep in mind. If you revolve a balance the credit card companies make money off of interest and fees. If they are offering you what essentially is a no interest loan, be wary. They have to make money somewhere.
  4. Take a pause before you use the credit card. Is this purchase necessary or an impulse buy? Is it something you can pay for in cash?

    photo by sanja gjenero

    photo by sanja gjenero

  5. If you have a large credit card balance STOP using the card! – Ok, I don’t mean to yell but this seems like a no brainer. However we all fall prey to the ease of use built into the credit card (see my note below.) However, each time you add to the balance the longer and more difficult it will be to dig yourself out of it. If you find the pull of plastic too much for you, do the Dave Ramsay thing and break up with your credit card. Cut it up and go to a strict cash only system, at least until your balance is paid off.

Note for Mom’s: I’m not going to lie, this has been a sticking point between me and my husband. I want to get rid of the card and he feels that we need to hang on to one for emergencies. These emergencies have turned into vacation purchases we are now working to pay off.

Don’t get me wrong I’m not blaming the hubby. I was an equal party to it. I never said “no we shouldn’t put it on the card.” However, looking back, if the card had not been so easily accessible, we might have considered other options to pay for our vacation. So if you feel your household finances are going down this path. Don’t waffle like I did. Stand firm for the financial health of your household.

 

 

 

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