THE CREDIT CARD TRAP

Credit cards enable you to spend future cashflow, income that you haven’t earned yet but expect to earn with some certainty (e.g., regular paying job, income from own business, etc).

Credit cards are temptations to live beyond your means. You are living within your means if you are able to pay off the entire balance in your monthly bill. This is the best position for you. You are, in effect, getting a 30-day loan from the credit card company interest-free.

There is a GREAT TRAP in small intallment plans paid through your credit card. The amount appears so small that you think you can afford it. And, as a matter of fact, you can probably afford it. The problem arises when you keep making purchases through these small installment plans –which inevitably pile up and total into a big share of your monthly credit card balance.

Pay attention to your credit card balances and watch those small installment plans very closely. As always, if you can pay off 100% of your monthly balance, you are ahead because you are getting an interest-free loan.

If you are not able to pay off your entire balance and this balance grows from month to month, from bill to bill, you are clearly living beyond your means and should re-think whether you really need those purchases on installment. You don’t want to end up entrapped in a financial cage of your own making.

images from Microsoft Clipart, reconstructed by Ren Garcia