Credit card Interest is calculated based on the average daily balance of your account for the entire month. By making a payment every couple weeks you are reducing that average balance and therefore reducing the finance charges assessed, as opposed to waiting until the end of the month to make a single payment. Interest, typically expressed as an annual percentage rate , is the fee paid for the privilege of borrowing money. This fee is the price a person pays for the ability to spend money today that would otherwise take time to accumulate. Interest on home equity loans and mortgages is also usually tax deductible, so wait to settle those last.

Interest rates go up and down depending on many different factors. If you have a variable interest rate, your credit card company could offer you a 9% rate (cool!) when you apply, then change it to 18% (uncool) in two months.

Paying off Credit Card Debt – A GREAT return on investment
Written by Chris Old

Credit Card Debt is a nasty subject to many people. I often see people who are loaded with Credit Card Debt, yet spending money on “investments” or 401k plans that there employers do not contribute to. Whenever I see someone investing in anything while they still have credit card debt, it makes me wonder why they don’t invest the money into there debt.

Most credit cards have an interest rate of between 7% and 36%, depending on your credit. If you have a lot of debt most of the time it will be higher. What people do not realize while they sink there money into other investments is that they can get an instant 7% to 36% on there money just by paying off there credit cards. Any investor will know that a guaranteed 7% to 36% return on your investment is an opportunity that you should sink as much money as you can in. So instead of putting money into a 401k, stocks, savings accounts or whatever else, you can gain a guaranteed return on your money just by paying off your credit card debt, and not being charged that same money further down the road.

Here is a good example, our friend Bill has $1000 in his savings account gaining 3% interest, he is contributing $100 a pay check to his non matching conservative 401K gaining 7% interest and he is paying an extra $50 to pay down his car loan which is at a low 2% interest, all the while he is only making the minimum payment on his $3000 credit card debt which is charging him %25 interest. Bill thinks he is doing good because he is paying extra money towards his car payment to pay it off quicker, and he is saving money in both his 401k and his savings account. Bill thinks he is making money, but in reality if he where to take all of his savings, stop contributing to his 401k and stop over paying his car loan, he would get a much greater return on his money by paying off his credit card debt as quickly as possible and net himself a 25% return on investment. This would eventually allow our friend Bill to contribute much more to both his savings account and 401k, while making them minimum payment on his low interest car loan.

The bottom line is that we have to look at the interest rates of not only what we are making money on, but also the interest rates of what we are paying money on. If we are paying high interest rates on credit card debt, it completely cancels out the interest rates of our investments and we simply continue to lose money each and every month on our bottom line. Why make the Credit Card Companies rich when we could make a little interest ourselves!

It seems that everyone loves borrowing money to pay for things. There are even gimmicks to make people think they are saving money or getting things for free by using there credit cards, but someone has to pay for all of those frequent flyer miles, and if you have credit card debt then I should thank you for my flight to Hawaii! Credit Card Debt is nothing but paying someone to borrow there money. If you have the money to invest elsewhere, why not invest it in yourself and get to the point where you are not paying someone else to borrow there money.

Credit Cards – A Means for Making Chronic Bad Choices
Written by Brent Crouch

According to the Federal Reserve Bank, in 1968 consumer credit card debt was $8 billion dollars. In 2007, that total exceeded $880 billion. During this same period, the rate of bankruptcy has dramatically risen as Americans have shown an insatiable desire for spending more than they make.

A lot of American families view credit card debt as a necessity of every day living. This little piece of plastic has become a modern day security blanket. In my opinion, credit cards are more resembling of a set of handcuffs than any type or form of security.

Credit cards have become a crutch for people to justify the bad choices they make. If you didn’t have this little piece of plastic that cures and satisfies all, would the choices you make be different? My guess is for most people, they would.

Credit cards provide a seemingly easy way for those that choose to live above their means. Many people find it easy to purchase more house than they can afford, plan families before they are financially able, and keep up with the Jone’s because of their reliance on credit cards. There is no longer any accountability for personal choice. Many of these people view their credit card debt as a necessity and matter of survival. While that may be the issue in some cases, I’d say in the overwhelming majority of cases it falls back to personal choice.

Avoiding Credit Card Debt

I’m not completely against credit cards. I am against people that mismanage and rely on them to live beyond their means. Personally, I have several credit cards that I use in my personal and business transactions. I pay my balances in full every month, because I simply made the choice not to use my card for anything I don’t have the money to pay for in full.

For some people having a credit card may not be an option. There are some people that will not be able to manage their spending no matter how hard they try. You wouldn’t recommend an alcoholic keep a bottle of gin under his cabinet, and for chronic over spenders, having access to a credit card may be a close analogy. If you aren’t disciplined enough to manage your spending, get rid of your credit cards now.

Credit Card Advantages

For those that can manage their spending and are committed to paying their balance in full each month, there can be some advantages to using credit cards. As more and more credit cards are competing for consumers, many have started offering cash back incentives. I have a credit card that I use for my business that I charge an average of $60,000 a month on. I always pay the balance in full each month, so I don’t pay any interest. This particular card pays me a full 1% cash back on every purchase I make. Every month, I get a check back for an average of $600 that I am using to fund my daughter’s college fund. So far, she has close to $10,000 all of which is proceeds from this cash back credit card.

Another advantage to using credit cards is consumer protection. I wouldn’t consider using a debit card that links directly to my bank account when I’m dealing with companies I don’t know very well. For me, the ability to use a credit card that has fixed limits, fraud protection, and a dispute process is a huge advantage to using a debit card.

Getting Out Of Credit Card Debt

Being up to your eyeballs in credit card debt doesn’t make you a bad person, it just makes you normal. In our world, normal is having more house than you can afford, two car payments, and credit card debt equal to twice your yearly income. So if you are saddled with credit card debt, how can you go from being “normal” to being financially stable?

A lot of people turn to debt consolidation companies. While mathematically, this may appear to be the best way out, I don’t think it makes sense for most people. Debt consolidation is a quick fix to problems that have taken you years to create. This quick fix doesn’t really fix the problem. Unless you are committed to changing your behavior, it only clears a way to get more credit cards later and create more debt.

Out of all the methods people use to get out of debt, I believe the Dave Ramsey plan is by far the best. A few years ago, I had a potential customer contact me about a product I was selling. It was clear she was looking for a “Get Rich Quick – Save All” deal and that wasn’t what I was offering. She was very forthcoming and told me she was on the verge of bankruptcy. I couldn’t in good conscious sell her a product knowing she was in a very tight spot and I wasn’t offering the “fix all method” she was looking for. Instead, I offered to send her a free copy of one of Dave Ramsey’s books titled “Financial Peace Revisited” provided she promised to read it. She agreed and I sent the book.

We spoke a few times by email and eventually lost touch. Almost 6 months later, I got this email from her that I have hanging on my office wall today.

Hi, Brent!

It’s been quite a while now, but I wanted to give you an update. I can’t even begin to thank you enough for sending me the book Financial Peace Revisited . It has absolutely changed our lives! After reading it, I got really pumped and then became one of those spouses that constantly yaps, “Well, Dave says…”

Although there is not a local radio station where I live that carries Dave’s program, I download it every night onto my ipod and listen when I’m out for my morning walk/run at 5:30 am. I know… kinda nerdy… but it definitely keeps me motivated! My parents bought us tickets for his live event in Dallas for my birthday. That was just this past Saturday. My husband and I had an absolute blast!!! He is an awesome speaker! Afterward, he did a book signing, so I got his signature as well as my pic taken with him!

My husband and I have also just started Financial Peace University at a local church. We’ve only been to two classes, but we are really excited about it. Since you sent me the book, we are on a budget… I’ve tweaked it a lot over the last few months. We have knocked out about $5,000 in debt and by the end of April we should have hopefully another $5,000 or so knocked out. I’m amazed at how much more money we “found” when we started “spending every dollar on purpose.”

I just wanted to tell you how awesome I think you are… I can never ever ever truly express my appreciation and gratitude… your act of kindness has changed my life. My marriage will benefit and our kids will absolutely 100% benefit. Thank you thank you thank you from the very bottom of my heart!

God Bless!!!

Kristine Jxxxxxxxx

I’m not down on people that find themselves in credit card debt. I am down on people that continue to use credit cards while complaining it is a matter of survival when it is really a means for them to make bad choices. The important things are credit cards can be a good tool if used wisely or your worst enemy if used improperly.