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The High Cost of Credit Card Debt

Written by Nickel - 51 Comments

Last night while going through the mail, I happened upon our Chase Freedom statement. Don’t ask why we’re still getting a paper statement from them, as I’m honestly not sure – guess I need to change that.

Anyway, I don’t usually look at our credit card statements too closely, as we pay our credit card bills in full every month. I usually just skim over the transactions to make sure everything looks right, and that’s about it.

This time around, however, my eye was drawn to the “Minimum Payment Warning” box, pictured below. I’ve talked in the past about recent credit card statement changes, and this is one of the new additions.

Chase Visa Credit Card Minimum Payment Box

For context, our closing balance was $2720.12, the APR is 15.24%, and the minimum required payment is $54. As you can see from the image above, if we made that minimum payment each month and never made another charge, it would take us 21 years to pay it off. 21 years!

Not only would we be paying for our July 2010 purchases through the year 2031, but it would come at a total cost of $5,936. That’s 118% extra. 118%! If that’s not motivation to get out of debt, I don’t know what is.

The whole point of this table is to make it clear to people just how much money they’re wasting by carrying a balance. They do their best to obfuscate things in the next line, however, where they present an alternate payment scenario.

Guess what? If you pay $95/month, you can pay it off your balance in three years while “saving” $2,525. That’s all well and good until you remember that this “savings” actually represents nearly $700 in extra interest payments vs. paying it all off up front.

Hmmm. No thanks. I think I’ll keep paying my bill in full. What about you?

Published on August 13th, 2010
Modified on September 17th, 2013 - 51 Comments
Filed under: Credit Cards, Debt Reduction

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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51 Responses to “The High Cost of Credit Card Debt”

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  1. 1
    Nick Says:

    I love how it’s called Chase “Freedom” and their minimum payment would require 21 years of payments… kind of ironic (or moronic…one of the two)

  2. 2
    Nickel Says:

    Nick: Maybe both. :-)

  3. 3
    Luke Says:

    I never quite understood “paying it off in full”. Besides the crappy “bonuses” you can sometimes get…why not just use a debit card? (i am sure you probably talk about that somewhere in here! lol)

  4. 4
    Anthony Says:

    The main reason why I use a credit card is for online purchases. I’d rather havea CC number stolen than my debit card. I know they both offer the same protections, but I’d rather not have it linked directly to my bank account. The second reason is that I use my AmEx card for the automnatic warranty extensions and some other perks.

  5. 5
    Henry Says:

    I use my AmEx card for the same reason as Anthony, extended warranty, online protection, etc. Plus in the last 5 months I’m getting over $100 back on purchases I would have made anyway. I just don’t quite trust debit cards. I’ve been seeing some good deals on high interest checking accounts recently that are tied to debit card use, so I may take a look into those soon…

  6. 6
    Money Obedience Says:

    You have a similar problem with mortgages, on which you also pay about double the initial loan amount. But a mortgage supports an asset rather than outright spending.

    @Nick: My thoughts exactly. Seems like “freedom” is an often misused word these days.

  7. 7
    smartcredit Says:

    It is not true that debit cards and CCs have the same protection. If someone steals your CC number, you can call the CC company (or the CC company fraud dept. will alert you to suspicious charges) and you are not liable for the fraudulent charges. In the fine print, they say that you may be liable up to $50, but during the one time when someone took my CC number, I never had to pay a penny. Chase Freedom visa called me on my cell phone; when I did not reply, they alerted me by email. When I did not check my email, they suspended the account. I called in, said that I never made the charge, and Chase promptly closed the account and sent me a new card with new number.

    In contrast, if someone steals your debit card number, they can clean out your entire bank account in a few minutes. Your outstanding checks will bounce, triggering NSF fees, anxiety, hardship and embarrassment. The bank will conduct an investigation, which could take days or weeks, during which time you have no access to your money. For this reason, it is better to use a CC.

    I use CCs to pay for everything. I am frugal and disciplined enough to charge only necessities like groceries, gasoline, car maintenance, utilities, insurance, dental bills, eye glasses, books and dorm room and tuition for school (when I was in college), etc. I do not buy items I don’t need and keep my expenses as low as possible.

    These expenses must be paid anyway. If I pay with debit card or cash, I get nothing in return. In the past several years, I earned thousands of dollars in cashback rebates just for using my CCs to pay for necessary expenses. I put my savings and cashback rebates in a Rewards Checking Account that pays 4.01% interest and watch my funds grow and grow. It’s a win win situation for me.

  8. 8
    kev Says:

    @Luke:

    I pay my credit card balance off in full each month as well. Paying a credit card off in full still gives me free use of their money for a month, where as a debit card purchase is immediate. I find that the month of borrowed time allows for some added flexibility when it comes to unexpected expenses – like the freaking car repairs I got nailed with last week.

  9. 9
    Jesse Says:

    @smartcredit: 4.01%?? My god, my “high interest” online savings account pays less than 2%. I think we need a post about that!

  10. 10
    Nickel Says:

    Luke: Pretty much everything has been covered by others, but… Rewards, free purchase protection/extended warranties, better fraud protection (I’d rather have a portion of my credit line frozen than a portion of my bank balance), and I also don’t have to worry about making a tracking error and suffering an overdraft fee when my card doesn’t draw directly on my bank – I’m on top of things, but nobody is perfect.

  11. 11
    Floridian Says:

    I do not like debit cards for the reasons smart credit mentioned. It scares me that if it gets lost, or someone swipes the number (they don’t even have to swipe the card, just the number), your bank account can be drained in a matter of minutes. We put all the necessities on a CC and pay it in full every month. Get some nice rewards for it too ;)

    and yeah – where’s this 4%? on a CHECKING account? nah – I call BS! are you sure it’s not .0401%? (four tenths of a percent)? I have a rewards money market, but it’s still under 2%.

  12. 12
    Nickel Says:

    All: It’s not uncommon to have high interest rates n reward checking accounts as long as you jump through some hoops (direct deposit, minimum # of debit card transactions per month, and so on). Also, the high rate often only applies to a limited portion of the balance, such as balances under $10k.

  13. 13
    Jesse Says:

    Nickel: I would love to see a roundup of those accounts. I can’t even get 4% on a CD.

  14. 14
    John Says:

    I have a Reward checking account at a semi-local bank. It pays 3.98% APR on the first $25,000 of the average balance. In order to qualify I have to use online statements, make 15 debit transactions/month, and use the ACH for at least one transaction. They say it has to be a direct deposit, but all of my ACH transfers, in or out, appear to count towards the total.

    With the 15 transactions per month you about have to use it for daily purchases to make the min each month. I try to use my Amex card for gas and larger purchases in order to harvest the rewards, then let the debit card take care of the day-to-day small purchases and bike fill-ups to make the minimum. I pay off my Amex each month and I have a balance on one other card with 0% interest for the next year.

  15. 15
    smartcredit Says:

    Test

  16. 16
    50plusfinance Says:

    All credit cards should be illegal. Its like smoking. No problem in the early years, its fun. But later some people develop cancer. Some people develop credit card cancer. There should be a warning on your credit card saying “Warning: the use of this substance is hazardous to your wealth”. Now I’m going to the mall, wheres my Chase card?

  17. 17
    Jesse Says:

    @50plusfinance: So if you need emergency car repairs and you don’t have cash in the bank to cover it, well, I guess you can just quit your job if you needed that car for your commute. If your car breaks down in another state, well, I guess you can just start living there and leave your old life behind. It’s your own fault for not being rich enough to cover all unforeseen expenses, right?

    Yes, the world would be a much better place without credit cards. For some people.

  18. 18
    50plusfinance Says:

    @Jesse: Did you read the post? It says what a rip-off credit cards are. You would be rich enough if you didn’t send all your money to Chase. Why not get on a budget and save some money for car repairs. Spend less than you make. Save for a rainy day. Like Mom & Dad taught us.

  19. 19
    Jesse Says:

    @50plusfinance:

    Your glib philosophy is totally unrealistic. Not everyone has the luxury of having unexpected expenses come only at a time when they have a lot of money saved up. Outlawing consumer credit would be a catastrophe.

  20. 20
    Ben Says:

    @50plusfinance:

    Credit cards are only a bad idea if you are incapable of managing debt. I pay my balance off before I am ever charged interest, I get cash back rewards for every transaction I make, and I can relax knowing that if the credit card is stolen I don’t have to worry about having all my assets frozen while the matter is under investigation.

  21. 21
    Floridian Says:

    “Outlawing consumer credit would be a catastrophe.”

    HAHAHA – please! Don’t make me laugh any more!

    “Credit cards are only a bad idea if you are incapable of managing debt.”

    and unfortunately, that’s most of the people living in this country! All using credit cards b/c they want it all NOW! If most Americans didn’t have the attitudes of spoiled brats, they WOULD have money in their accounts to cover emergencies! Maybe the minimum age on unsecured credit cards should be rasied…maybe 25? although most 25 year olds today are far from being real adults, so that wouldn’t really fix anything either. What a sad sad country of spoiled brats!

  22. 22
    Jesse Says:

    @Floridian: “If most Americans didn’t have the attitudes of spoiled brats, they WOULD have money in their accounts to cover emergencies!”

    With a little thought, it’s easy to see why that isn’t true.

    Imagine that by minimizing your expenses and sticking to a budget, you’re able to save $500 a month. That’s pretty extraordinary, I’d say, and you’ll have more savings than most Americans in no time.

    But what happens if you get hit with an unexpected $1500 bill the first month? Guess what, you need to borrow $1000 from somewhere! Without a credit card, and without friends or family who can lend you the money, what are your options? A payday loan at 350% interest? Bankruptcy?

    This is the same reason HSAs can’t replace health insurance, by the way. You can’t schedule emergencies to happen at a convenient time when you have a nice chunk of cash in the bank: even with superhuman budgeting abilities, you’ll still be vulnerable for at least a short time at the beginning, and if tragedy strikes then, the result will be far worse than paying credit card fees.

    “Maybe the minimum age on unsecured credit cards should be rasied…maybe 25?”

    We have too much age discrimination already, thank you very much. All this would do is make 25 year olds as inexperienced as 18 year olds are today.

  23. 23
    Floridian Says:

    Jesse- what are you, 19? I was pretty sure from reading your earlier posts that you were under 25 (and your last statement confirmed that, which, BTW, made me laugh out loud! Mainly b/c I thought the same way when I was in my early 20s. Come back when you’re 30 and tell me if you still believe that statement!), but do you really think saving $500 a month is an “extraordinary” amount? REALLY? That is so sad. Keep reading boards like this – soak in what is being said, evaluate (re-evaluate) your spending habits, learn to apply advice that is given, and you’ll see how easy it is to stash away 2 times, 3 times, or MORE the amount you think is “extraordinary!”
    ;)

  24. 24
    Jesse Says:

    @Floridian: I’m 28, actually, and I find it quite telling that you’ve chosen to dismiss my arguments based on your incorrect assumptions about me rather than actually responding to them.

    Maybe the economy in your area is healthier than in mine, and saving $500 a month is no problem for you. Congratulations, I’m sure that must feel great! But it’s beside the point: no matter *how* much you can save every month, it’s still a finite amount.

    There’s *always* a chance that you’ll be hit with a big unexpected expense before you have enough cash in the bank to cover it. That’s where credit (and insurance) come in.

    What is your answer to people in that situation? “Sorry, you should’ve had the foresight to live in my area and get a higher paying job?” “It’s your fault your car broke down this month?” “Here’s the number of a great bankruptcy lawyer?”

    You would do well to try to look past your own situation and realize that what works for you may not work for everyone else. Maybe that would also help you understand how someone over age 19 can be opposed to age discrimination.

  25. 25
    Floridian Says:

    I didn’t respond to them because I thought they were too pathetic to waste my time responding to them ;) They all sound like excuses of someone with poor planning skills. Yeah, crap happens. Plan for it. Live below your means and save for emergencies.

  26. 26
    Floridian Says:

    Here – As an example, when I was 23, the hubby and I were house hunting (we saved for a year to have a good sized down payment or it). Both of us were fresh out of college with Masters degrees and brand new jobs. The bank told our real estate agent – and I quote – “these kids are golden!” And they tried HARD to convince us to buy a bigger house! Ya know what, we didn’t listen to them! We didn’t buy as much house as they said we could “afford.” We didn’t want to live paycheck to paycheck and we NEVER wanted money to be an issue. 6 months later, one of our cars died and we had to shell out money for a whole new engine! OUCH, that was expensive! But ya know what, we were able to pay CASH for that engine.

    Does anyone else plan like that today and set aside some money for emergencies? NO! It’s why the housing market busted like it did. It’s why Americans are drowning in credit card debt. It’s why Americans are only saving a piddly 6% of income now – which is better than the savings rate last year, but still pathetic. This is a spolied entitlement society. People want it all and they want it NOW! And consumer credit allows them to do it…to a point.

    Am I against credit cards? NO! I have 4 of them (but only use two and pay them off in full every month-the other two are for emergencies). I just feel that MOST people are too irresponsible with them. And yes, a 25 year old IS more resonsible than an 18 year old (even if not by much). And it’s kind of annoying seeing someone throw out pathetic excuses as to how credit card usage might be smart or necessary. It’s not necessary unless you made really bad choices, or had extremely bad luck!

  27. 27
    Carol Says:

    I use a cc for all my purchases b/c of the cash back and always pay the balance in full. If you’re not good at controlling your spending with cc, debit cards are the way to go. Thankfully now without overdraft protection. But unlike the author of this article, I scrutinize every single purchase. I don’t just wait until I get my statement to check the purchases, either. I go online a couple times a week to check recent purchases, write them down in our budget, and make sure they’re legit. I read somewhere that purchases made before a card is reported stolen have a liability of $50. It’s only after the card is reported stolen that you have $0 liability.

  28. 28
    Jesse Says:

    @Floridian: “They all sound like excuses of someone with poor planning skills. Yeah, crap happens. Plan for it. Live below your means and save for emergencies.”

    As I’ve repeatedly explained, sometimes it’s *literally impossible* to “plan for it” because the money just isn’t there. I’m not sure why you’re having such a hard time understanding this.

    Even if you can somehow save $10,000 a month, there’s still some chance that you’ll face an $11,000 expense the very first month. It may be rare, but in a country of 300 million people, it’ll happen to hundreds of them. That’s why 50plusfinance’s idea of outlawing credit would be a disaster.

    By the way, you’ve just contradicted yourself. If Americans are only saving 6% of their income, and median household income is around $50,000 a year, then saving $500 a month would indeed be extraordinary (double the average rate). Saving three times that much, as you claim is “easy”, would be even more extraordinary. But go ahead with your glib prescriptions — if you have an extra $1500 a month to put away, then everyone else must too, right?

  29. 29
    Floridian Says:

    “Sorry, you should’ve had the foresight to live in my area and get a higher paying job?”

    well, if I wanted a high paying job, I certainly wouldn’t be living where I am now! I only stayed to be close to family. I support my family of five on a crappy state income. But, as you well know, it’s not about how much you make. It’s more about how much you SAVE. And you can save a lot when you don’t owe money to others – as this post clearly showed! (all we have is a mortgage – everything else is paid for, so it’s easy to save over $1,000/month when we don’t owe anyone anything!).

    “You would do well to try to look past your own situation and realize that what works for you may not work for everyone else.”

    That’s b/c most everyone else is too lazy to make it work. What worked for us was HARD work and dedication. And I know for a fact that what we did WILL work for most everyone else dedicated enough to not be a slave for the rest of their lives. And I hear proof of it every time I listen to some Dave Ramsey. Day after day after day there are people calling in to scream about how they are debt free – some overcame situations that even I myself can’t believe! Maybe now you see why I don’t have pity for those who make excuses.

    There – did I answer all your questions now.;)

  30. 30
    Jesse Says:

    @Floridian: “There – did I answer all your questions now.;)”

    Nope…

    “it’s easy to save over $1,000/month when we don’t owe anyone anything”

    Again, congratulations, but what would you have done if you had a $2000 emergency expense the first month? That’s the question you keep ignoring: what happens when you’ve saved all you can and it still isn’t enough? It seems like you’re just writing that off as “extremely bad luck” and pretending it doesn’t happen.

    I realize you’ve said you’re not opposed to credit cards. But if that’s true, I’m not sure why you’re arguing with me — as you may recall, my point here is simply that credit cards are sometimes necessary and outlawing them would be catastrophic.

  31. 31
    Floridian Says:

    I never disagreed with what you said: “There’s *always* a chance that you’ll be hit with a big unexpected expense before you have enough cash in the bank to cover it.” In fact, if you read my comments, you would have seen where I stated that I DO have CCs for emergencies. See! – I agree that they CAN be used for emergencies! But having a CC set aside for emergencies is not the optimal choice – which is why I also have > $30K set aside for emergencies. Is that enough? My husband says it’s more than enough. But you are right, it might not be enough if the perfect storm of emergencies hits us!

    yes there’s “always a chance” that a big unexpected expense will hit before enough cash is saved up. But is that lame excuse what keeps you from saving?

    I didn’t think I was arguing – just stating my point all along that credit cards are NOT necessary and outlawing consumer credit would not be a catastrophe. And it was not I who said credit cards should be made illegal. I believe my original post was in response to the absurd comment that “Outlawing consumer credit would be a catastrophe.” And no, I did not contradict myself. a 6% savings rate (as I stated earlier) is pathetic! Maybe if you compare $500/month to the average family, you can call it “extraordinary”? For those of us who are not lemmings, saving $1,000+/month IS easy. It’s not “extraordinary.”

    Oh wait – if I use your definition of extraordinary, I guess I can say that my husband and I give away an extraordinary amount to church and charity every month. Hmmm…on second thought – that sounds pretty good, maybe I DO like your definition of extraordinary! ;)

    haha – whatever.

    You know, no matter how bad you think your situation is, there is ALWAYS a way to make it better ;) It may not be easy – it may require a lot of hard work and sacrifice, but there is always a way.

  32. 32
    Jesse Says:

    @Floridian:

    “But having a CC set aside for emergencies is not the optimal choice – which is why I also have > $30K set aside for emergencies.”

    Certainly. It isn’t optimal, but sometimes it’s the only option.

    “But is that lame excuse what keeps you from saving?”

    There you go again, making unwarranted assumptions.

    “And it was not I who said credit cards should be made illegal. I believe my original post was in response to the absurd comment that “Outlawing consumer credit would be a catastrophe.””

    Heh. What’s absurd is the idea that people having to declare bankruptcy, quit their jobs, etc. over minor unexpected expenses that come at the wrong time would somehow *not* be a catastrophe. That’s what would happen if consumer credit were outlawed — and you even seem to understand that yourself at some level, so I’m not sure where the disconnect is coming from.

    “Maybe if you compare $500/month to the average family, you can call it “extraordinary”?”

    Yes, that’s what “extraordinary” means: it means out of the ordinary. It’d be nice if we lived in a world where being able to save $1500 a month were merely ordinary, but we don’t.

    “Oh wait – if I use your definition of extraordinary, I guess I can say that my husband and I give away an extraordinary amount to church and charity every month.”

    Yes, that’s right. Well, you said “your definition” when you were really referring to “the actual definition”, but close enough. Congratulations!

    Now it’s just a short journey to realizing that what works for you, in your extraordinarily cushy financial situation, doesn’t necessary work for everyone; and the things you find unnecessary might actually be necessary for others.

    “It may not be easy – it may require a lot of hard work and sacrifice, but there is always a way.”

    Of course. But the advice that’s appropriate for someone who has already reached that goal might not be appropriate for someone who’s still on the way.

  33. 33
    WOMEN! Says:

    WOMEN! They’re extraordinarily wordy is what they are! sheesh!

    I save $800 every month on an “average income” and don’t consider that an extraordinary feat. I pity anyone who thinks it is.

  34. 34
    Jesse Says:

    Sorry to rain on your fantasy, but I’m male. (Like Jesse James, Jesse Jackson, and Uncle Jesse from Full House.)

    Congratulations on your extraordinary savings, too. I’m amused that you think an income with a spare $10,000 every year is “average”.

  35. 35
    50plusfinance Says:

    @Jesse Your just making excuses. If your reading personal finance blogs haven’t you picked up any tips for getting you personal finance house in order. What I read here only encourages me to save. The glass is half full…

  36. 36
    WOMEN! Says:

    Pardon me, let me repost:

    I save $800 every month on what the US census bureau considers to be a “median income” and I don’t consider that an extraordinary feat. I pity anyone who thinks it is.

    Keep making excuses.

  37. 37
    Jesse Says:

    I’m puzzled by all these accusations of “making excuses”. I’m just pointing out that changing the law as @50plusfinance suggested would be a bad idea. I don’t know who or what you think I’m excusing.

    If this were a weight-loss blog, and someone had suggested outlawing sugar, do you think they’d overreact the same way to anyone who questioned the sanity of that proposal?

  38. 38
    Floridian Says:

    @#35 – 50plusfinance

    I agree! Stuff I read on these PF blogs encourages me too! Sometimes I think we are doing pretty good, then I read something on a PF blog that encourages me to change something and do better!

    I am always on the lookout for opportunities and ideas to better ourselves and our situation in life :) Those with closed minds will never get ahead.

    :)

    (PS – I hope that wasn’t too wordy for ya #36!)

  39. 39
    Jesse Says:

    I think we’re all encouraged by the things we read here — at least the articles ;) — and all looking out for ways to improve our situations. That’s why we’re here, right?

  40. 40
    smartcredit Says:

    The amount you save each month depends on your circumstances. I have two master’s degrees and a law degree. I worked hard for those degrees and after 20 years of legal practice, am able to save much more than $500 each month.

    However, turn the clock back to my college days, or when I was a young associate in a law firm, and $500 in savings a month would have been outstanding. At the time, I had student loans, plus living expenses such as gasoline, costs for professional wardrobe, costs for legal seminars (which I paid out of pocket), etc. Two other members of my family are attorneys and we all struggled when we first entered the profession.

    After many years of representing hundreds of clients who simply cannot save $100 a month due to circumstances, I would not judge anyone over the amount they can or cannot save. I had a client a few years ago who owed $400k in medical bills for a premie. After years of trying to pay back, she finally filed for bankruptcy.

    If your skills, advanced education, and profession allow you to save more than $500 a month, then count your blessings. If you are struggling to save just $100 a month, I feel your pain. Keep working at it and don’t give up. Don’t feel badly that you cannot save more when circumstances in life make it impossible. Not all of us are in the same place in life and career. Best wishes to you.

  41. 41
    Leen Says:

    Jesse, I totally agree with you. Outlawing credit cards would be catastrophic. Even if we eliminate all the people who use them to feed their kids, they are an emergency fund for so many whether it be unexpected doctor bills or car emergencies. We all have to start somewhere with savings and credit cards are that cushion that most of us have to use on occasion.

  42. 42
    50plusfinance Says:

    What did people do before there was credit cards? I guess save for the rainy day. They had no choice. Today the banks have taught us to rely on there credit cards, they will take care of us. Keep on charging everything on credit. Their poison has crippled those who have fallen for the sermon of buy, buy and buy. Keep listening to the pablum fed to us from the banking industry.

  43. 43
    Jesse Says:

    @50plusfinance: In situations like I described, they either begged their friends and family for money, or they quit their jobs, or they became criminals, or they declared bankruptcy, or they just evaded bill collectors for years. Apparently you’d like us to go back to that!

    “Keep on charging everything on credit”? Are you so confused that you actually think someone here is recommending that, or do you just like making up ridiculous statements so you can argue against them?

  44. 44
    Leen Says:

    @50plusfinance: You are hilarious! I hope no one ever carries a balance on their credit card. I personally think using one for the rewards causes people to spend more money than if they used cash, so I don’t advocate that either. But I think most people should have a credit card. It is a cushion while people save for a rainy day. Or if a tsunami comes and wipes out the rainy day fund, you can still survive. Credit cards are not evil. They are an easily accessible high interest loan. That sometimes people need and are better than the alternative – payday loan places, not paying bills, etc. Just because people use credit cards unwisely, doesn’t make them inherently evil.

  45. 45
    WOMEN! Says:

    wow – get a life Jesse/Leen/or whatever your name is…just like my 5 year old, who doesn’t know when to stop arguing. but thank goodness my 5 year old doesn’t take on alternate personalities!

  46. 46
    Leen Says:

    I don’t consider this arguing – it is a spirited internet discussion about credit cards. I am not Jesse but I’m glad you think his opinions are so crazy that he has to invent someone to agree with him! And thanks for calling me a five year old. You obviously just want to have the last word because you didn’t contribute anything to the conversation other than name calling – very mature.

    I hope the new information on credit card statements help people making only the minimum payments take notice of how much money they are wasting on interest and attack their debt like never before.

  47. 47
    Nickel Says:

    Okay folks, this discussion went off the rails awhile ago. Let’s keep it civil so I don’t have to lock the comments…

  48. 48
    smartcredit Says:

    Tip: if you get a CC which offers 0% interest on purchases for six to 15 months, use the CC to charge living expenses, pay the minimum balance monthly, let your savings grow in a Rewards Checking Account that earns 4.01% interest (up to $25k), and pay in full before the due date. You will get cashback rebates plus interest at your RCA.

    I was disadvantaged during childhood. Parents owned a small business which barely broke even, and scrimped and saved to put four kids through college and professional school. I learned to be frugal. I don’t recommend CCs for spendthrifts, but for those like me, CCs offer thousands of dollars in cashback rebates and interest.

    If you think that CCs are evil, don’t use them. Do what is best for you and let others do what is best for them. To each his own.

  49. 49
    Floridian Says:

    well this certainly has gotten amusing – kind of glad I came back to read!

    smartcredit – I looked into those high interest rewards checking accounts – and most of them came with a lot of hoops to jump through, so I passed. With a full time job and three kids, I don’t have time to keep up with whether or not we’re meeting requirements of those accounts. I can barely keep up with life as it is!!

    But we used to do something very similar to what you are suggesting. Back when 3 & 6 month CDs were paying 5%+ (which wasn’t all THAT long ago – I’m only 34), we would stash the money there. No hoops – just a time commitment. The CDs would mature before the 0% rate on the CC expired. Oh I miss those savings rates!

    Now we use the credit cards for the rewards. We charge our normal monthly expenses and pay it in full every month. We got free airline tickets to Rome last year! And the Discover is good for the cash back. I keep waiting for them to change the terms on us to bring them in line with the crappy rewards that are now offered, but we still earn at the same rate as when we got the card :) (I probably just jinxed it!)

    “If your skills, advanced education, and profession allow you to save more than $500 a month, then count your blessings.”

    You left out frugality! ;) Although you did mention it in a later post ;) I was disadvantaged during childhood too – parents didn’t have any money, not even to help me through college, so I didn’t even get THAT. I had to “scrimp & save” and work my tail off to pay for my own education (Bachelors, Masters, and a CPA). At one time, I had three (yes, THREE) jobs while taking classes (one full time, 2 PT)! For me and many others, it’s being frugal (and smart with credit ;) ) that allows us to save an “extraordinary” amount. But I have never considered it extraordinary ;) That’s simply because my husband and I are able to do it given our backgrounds – both of us started with nothing, paid for our own educations, and never got ANY help from family or friends. It seems to me that if we were able to do it by 25, then ANY one should be able to do it. But the reason most aren’t able to is because this has become an extremely materialistic society. Most people have their “needs” & “wants” mixed up – and end up unecessarily putting it all on credit – and paying dearly for it! I don’t think credit cards are evil. Rather, most people are just too stupid to use them wisely. But yep, as you said – to each his own! Not my problem…until they use my tax dollars to bail the poor bastards out!

    oops – hope I don’t get hollered at for getting too wordy there ;)
    *snicker*

  50. 50
    smartcredit Says:

    Floridian, you broached some good points. I identified four topics in your post which I will address separately. First, I will discuss Rewards Checking Accounts (RCA.) Like you, I sorely miss getting 5.00% on CDs. I still have CDs at various places, but the best rate was 1.50%.

    My RCA requires online statements (which I do anyway) and the equivalent of 11 debit transactions. I do 11 transactions by paying two CCs online in increments (if I owe $500, I may schedule payments of $50 each.) I do the same with one or two utility bills. I schedule incremental payments in one sitting, so I do not do this 11 different times. I am a bit OCD, so do not deem this bothersome. It is a personal decision.

    My RCA earns 4.01% up to $25k and 1.00% beyond $25k. With $25k, I earn $1002.50 annually. My colleagues scoff at this amount, but I enjoy getting money for comparatively little work.

    Since you dislike the “hassle” of an RCA, have you considered an online account at Ally? I link my RCA to Ally Online Savings and to Ally Money Market Account, both of which earn 1.29% interest. Ally offers great chat assistance and linkage to unlimited external accounts (huge bonus if you have accounts at many places.)

    I link my RCA to investment accounts at two brokerage firms. I buy stocks and mutual funds in $5k increments when the market is down. If I hold these funds for long term, I should earn at least 10% on my investments. This estimate is conservative because my international funds give 35 to 56% return. If I use $5k to buy shares, that leaves $20k in my RCA. I move another $5k into the RCA to maximize interest. Then I repeat. This strategy works well for me. I will address the second topic in my next post.

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