Don’t Fall Into A Spiral Of Debt

Paying high interest on credit cards is never a good strategy to building wealth and achieving positive personal finance goals.  What is a high rate?  These days, 25% is probably considered high.

If you find yourself in a high interest situation, hopefully you are trying to do something about it.  Some people continue paying on the debt, hopefully whittling away the debt.  Others try to take advantage of balance transfers for lower rate cards.

Regardless of your intent, getting out from underneath a high interest loan is key, because any dollar paid in interest is a dollar you no longer have.  Reducing those dollars spent will help put them in your pocket instead.

One of the things that can come up that can really throw a monkey wrench in getting away from high interest credit cards is a situation in which you may not be able to pay even your minimum payment.  This can have a long lasting effect on your credit as a late payment can cause your rates to go up even further and could add additional late fees to your account.  In certain cases, say if your paycheck is coming a day or two later, it could make sense to look at a short term loan.

Keep in mind timing.  Paying the loan off in a couple of days is costly, but can sometimes be less costly than a late fee.

If you do have to go this route, there are two key takeaways.  First, it must be a one time thing.  Getting into a habit of using these loans will cost you more and more each time, leaving you with less of your income available to pay your credit cards and other bills.  The goal is more money in your pocket, not less.  Second, you must start to build a cushion so that you don’t get in this situation again.  Even putting $5-10 of each paycheck aside will slowly start building a small savings, so that in the future, you could tap into that rather than turning to an outside provider that will be happy to charge you.

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3 thoughts on “Don’t Fall Into A Spiral Of Debt

  1. I was actually just doing some research on credit card rates, and the median rate these days is about 15% – which sounded low to me. I’m one of those people who never even looks at the interest rate when considering a credit card, because I always pay in full and on time… so the interest rate is a moot point.
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    • Same here. I bet the average includes everybody with low rates plus all those with 0% cards (even if they are only for a limited time)

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