Many people think of credit cards as making them wealthy, but their bank accounts say otherwise. In a study performed by McDonalds, they estimated that people spend 47% more at their restaurants with a credit card than they would have with cash. The logic: Credit cards don't feel like you're spending money, not your own money anyway. And it's true, it's not your money, it belongs to someone else. Credit cards give you a feeling that you are wealthier than you are. But you aren't wealthy with a credit card, even if it's platinum or gold. The credit cards companies may have given you a high limit, but that doesn't mean it matches what's in your bank account. Maybe you earned 20,000 airline miles for an $8,000 purchase. It might have seemed smart at the time-who doesn't want a free trip? But for many people, when the credit card bill arrives, chances are that $8,000 is not going to be paid in full. And now you've got interest to worry about, maybe even fees. In addition, if any other emergency expenses come up in the next few months (and they always do) that interest could just keep growing. Now you're in debt, with the possibility of several hundred dollars in extra interest. Basically, that could be thousands of dollars spent on what might have only been a $250 plane ticket to begin with. Suddenly, it's not a 'free' trip anymore. Interest rates and compounding interest can be difficult concepts to grasp, and that's why credit card companies are so effective at taking more and more of your money. In fact, credit card companies are probably hoping you don't understand interest rates. It's is essential that you understand what interest is capable of, or you'll find yourself in a sticky situation. Interest rates can and will hike. In fact, they have reached an all time high in the last 5 years, with one study finding interest rates as high as 36%. That's probably not the interest rate you started with. Historically credit card companies have found ways to raise your interest rate, and often when you're late on payments or not paying in full. Compound interest, on the other hand, can be even more sinister. In a nutshell, compound interest is interest on top of your interest and your principle amount owed, and if you remain in debt for a few years, you can find yourself owing thousands in interest alone. The Truth: Points and miles and rewards are merely incentives from credit card companies to get you spending money and using their cards to do it. Maybe you will have the points for that trip to Barbados, but you might be in too much debt to go on that trip. Do yourself a favor and set some money aside into a travel savings account, and forget those credit card incentives.
The Truth: Instead of letting interest rates and compounding interest get the best of you, put them to your advantage by creating an interest savings account that actually builds and compounds interest in your favor. You can be making that extra money instead of losing it. Stick with the money you know you have; it won't deceive you.
The Truth: Credit card companies have their own methods for 'repossessing' money. This means aggressive debt collectors, expensive lawsuits that could require a look at your assets for payment (house, car, etc), and finally, bankruptcy, which has its own list of negative repercussions. If you're down this far, professional help may be your best option. Debt settlement companies, for example, can offer valuable credit card debt help. They evaluate your debt, set you up with a payment savings account, and negotiate with your creditors for lower amounts owed. Don't ever assume that those creditors aren't going to do everything they can to get the money they lent you. But professionals can face them for you while helping you decrease the amount you owe.
The Truth: Credit cards, especially the high and no-limit cards are offered to have you feeling and spending like you're wealthy, but in reality you could be neck-high in debt. Use cash instead so you know you're spending what you have.
Truth #2. Avoid the Lure of Points, Miles and Rewards
Truth #4. Collectors, Lawsuits and Bankruptcy Are Very RealSome people believe that since their debt is unsecured, or in other words, it's not an auto loan or a house, that they don't have to worry about someone repossessing anything in the case of non-payment. Debt can be unpleasant, frustrating and all-consuming, but always remember that you aren't alone. There are many people in your shoes, and more importantly, there are those who have conquered their debt like champions; and they did it by discovering the truth. Getting the facts about credit cards is one of the only ways to get back on your feet and breathe the air of financial freedom again. The truth may not be what you've been told your whole life, and it may defy what you want to believe, but it is your best chance at freeing yourself. Here are some simple truths to help you get the credit card debt help you need so you can conquer your debt-maybe before it even starts.
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