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They Don't Want You to Pay

In all your dealings with credit cards, remember this one thing: they don’t want you to pay. The moment you pay back everything you owe, you’re free from their interest, and that’s not what they want. They want you to keep on paying them a little every month for the rest of your life, making them a steady profit on things you long since forgot about buying.

Revolving Debt

Most credit cards are what’s called ‘revolving’ debt – the only real exceptions are American Express and Diner’s Club cards, which must still be paid off in full every month. They aren’t really ‘credit’ cards at all – they’re charge cards for people who could afford to pay in cash anyway.

Revolving debt means that you can pay off as much as you like each month, or you can just pay the minimum, and you can run up as much debt as you want each month, up to the maximum. Unlike a fixed-term loan (a 20-year mortgage, for example), you don’t know how much your payments are going to be, and you don’t know when you’re going to stop paying. Each new purchase can dramatically extend the time that it’s going to take you to get your balance back down to $0.

With a credit card, then, it’s perfectly possible to keep running a ‘balance’ (a debt) on your card forever, spending a little sometimes and paying a little back sometimes – and always paying interest. This is why credit cards are so profitable for them, and so expensive for you.

Add the Interest in Your Head

Don’t be fooled into thinking that you’ll never have to pay your credit card’s interest – sooner or later, for some reason, you will. A good strategy is to add your card’s yearly interest rates to everything you buy when you’re thinking about the price. If that thing is worth $100 to you, is it worth $115 (15% interest added)?

Likewise, if you buy something with your savings, take off the interest you get on your savings as a mental discount. This will help you to make the differences between savings and debt feel more real – saving instead of having debt is like having a money-off coupon you carry around with you all the time.

A Dollar Today Isn’t a Dollar Tomorrow

You probably don’t think about it, but using a credit card basically makes your money worth less than it would be usually. That’s why it feels so hard to pay a credit card back – if you borrow a dollar from a credit card at 15% interest, sit on it for five years, and then give it back, guess what? You still owe them the dollar. The dollar you gave them back was eaten up by interest.

This is one of the biggest things you need to understand about credit card debt: the longer you have it for, the bigger the problem it gets. If you have a problem, the last thing you should do is ignore it, because it will only get worse – you have to try and beat it early.