Someone wrote .................................
Credit Card?
Back in the 90s I watched a show on PBS like this one:
http://www.pbs.org/wgbh/pages/frontline/shows/credit/
I cut up all my credit cards and haven't used one since. We only have our
mortgage and a small car loan left.
Don't blame you; one has to be very careful with any loan arrangement
including, or particularly, credit cards! And if CC are a nuisance cut
them up and do everything possible on cash basis.
But there can be a role for 'careful/thioughtful' consumer use of a
CC.
The best way to use a credit card IMHO is to set up automatic payment
of the 'total' amount due monthly.
The CC company takes the balance owing from bank account on the same
billing date each month.
The result: a) No interest charges (Haven't paid any for CC interest
since we got the cards, about 7 years). b) Provides a 21 to 25 day
interval before payment is due, thus one is effectively using somebody
else's money for that period of time. It ain't much but anything that
defers payment without additional cost and is part of the system can
be done on principle!
For example I bought gasoline tonight, using CC. Payment for that will
not be due until the mid October statement.
But be careful; the moment the moment the CC balance is not not paid
off, annual interest charges of anywhere from 9%, 19% or even 29% can
occur. So even for one month on an amount as low as $500 interest for
one month can be a significant (around $8 on say $500 owing at 19%
etc.) for example. So frequent checks to make sure arrangements are
working are in order. Although one usually has an overall mental
recollection of where, financially, things are.
And watch the fine print like a hawk. And NEVER take cash off a credit
card it incurs interest IMMEDIATELY!
Municipal taxes for can be paid off over the year, without extra cost
and also allow use of CC it is possible at end of March (the deadline)
to set up an authorization for one ninth of the amount due to be taken
automatically, each month, from bank account. There is no extra charge
for this and there are no CC interest charges.
Another 'use' we have found for a CC is to buy safely via the
internet. We have one presently unused line of credit (it presently
owes us $2.21!) linked to credit card at a relatively low rate of
interest, which is held in reserve for a potential emergency
expenditure.
Also find that a CC in good standing ensures smooth purchasing.
Do not like that CC company has 'upped' credit limit on our card even
though not requested (or needed) and also even though our expenditures
had never ever approached the limit. This usually under the guise of
"You are such a creditworthy customer and we value your business
etc.!!!!) Appeared to be a very crude attempt to get one to borrow
more? And 'draw' one into debt and the payment of 'yuk' interest
charges!
Long ago, financially naive and innocent I bought my first car. All I
knew was that it would cost $61 per month. I had no idea how much
interest I was paying etc. etc. It wasn't long before I had figured
out that anything bought 'on credit' cost MORE!. And the higher the
interest ate and other charges the more it cost, over the ticket
price.
But how to compare different course of action?
Then I went on an engineering economy course, with Bell Telephone, and
the concept of time-money dawned on me and has been used here ever
since on all decisions.
Sorry to rant on; but put forward this cheap and dirty interest
calculator.
Suppose you borrow $10,000 and agree to pay it off monthly over 5
years at say 10% (ten percent just make it easy to figure).
At the start you owe 10,000 and at the end of 5 years you owe zero.
OK?
So on average you owe half of it or 5,000 (I said this was cheap and
dirty!).
So 'on average' you owe 5,000 at an interest rate of 10%, that's $500
per year for each of the five years.
Five years at $500 = $2500.
Adding the 2,500 to the 10,000; wow that's a quarter more than I
borrowed! Is $12,500.
Divide the $12,500 by the number of months 12,500/60 = $208 per
month.
So roughly your payment will be around $210 - $215 per month for five
years.
Have just put the above amounts into a 'proper' amortization
calculator programme' and the actual monthly amount comes out at $212
per month! So cheap and dirty works quite well for smaller amounts and
shorter periods; but don't try using it for a 30 year $100,000
mortgage!
BTW watch out for financial tricks such as no payments for three
months, meanwhile the seller is totting up interest on the whole
amount owing for another quarter of a year! In the above example that
could be another $125 or so. Another 1.25%!