Cash back is not free money!

A lot of people seem to make purchases they don’t need on their credit cards.

Cash Back

I think that this is one reason that people make purchases that they don’t need. The thing is 1% back does not justify a $600 purchase that you’re not going to actually use. Cash back is a tool: if it’s used properly, it saves money, otherwise, it wastes money. You credit card issuer actually wants you to make more purchases than you can afford so you have to pay interest, giving them money in the long term.

Buy now, pay later

This is another problem that credit cards have. People think that they can buy something now, and worry about it next month when the bill arrives. The thing is, you probably can’t come up with the thousand dollars you need, so you pay the minimum payment. It saves you money now, but by the time you pay off your credit card, you’ll have payed over 100% interest. Use your credit card the same way you would use a debit card: spend as much as you can afford, and nothing more than that.

Debt

An astounding amount of people seem to not care about how much debt they’re in, just as long as they have what they want. Credit card issuers take advantage of this mindset, and try and figure out the highest credit limit you can pay off in your lifetime while giving the issuer the most interest possible. The problem with debt is not the original amount, but the long term effect it has on you, and your credit score. The more you have on your credit card that isn’t payed off, the lower your credit score is, causing all other loans you take to have a higher interest rate, meaning that you pay more in the long run. While this is great for the companies, I don’t think you want to pay $100 of interest on that cup of coffee you bough twenty years ago.

By the way, how I got to that number is because the minimum payment is around 1%, which takes like 30 years to pay off(on the credit card bill I saw). And even a twenty percent APR, over the 30 years it takes you to pay off your balance, you’ll have payed 600% percent interest. I didn’t calculate the numbers in this post, those were likely under-estimated, but still show the devastating effects debt can have on your long term finances.

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