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Debt Free Living in the 21st Century |
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Credit cards can be a convenient way to pay for larger purchases, but even then they should only be used if you already have the money to completely pay off the credit card statement when you receive it. Someone who knows how to responsibly use credit cards doesn’t need a dozen of them (the average household has 9). You really only need one primary credit card and maybe one additional card for emergency use.
The cost of credit It’s surprising how few people realize the true cost of credit. Too many only take notice of the low introductory rates that are headlined on the multiple credit card offers they receive. Currently, the average credit card interest rate is over 14% and many individuals with credit card balances are paying 20-30%. Just using the national averages of a 14% interest rate with a $9,000 balance would result in having to pay $1,260 a year in interest just for the privilege of still owing $9,000. If that individual earns $35,000 a year and takes home roughly 75% of their paycheck, they will have to work a total of 100 hours or two and a half weeks just to earn enough to pay that credit card interest.
A recent report from the Government Accountability Office estimated that about 70 percent of the credit card industry's revenue comes from late fees and other penalties. These can be as high as $39 (annual fees, over limit fees, late payment fees, cash advance fees, balance transfer fees, etc.) and are piled onto already high credit balances and interest fees.
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