In the United States, having credit is no longer a luxury but a necessity. The rates for homeowner insurance and car insurance are partly based on your credit rating. If you have bad credit, or no credit, you’ll pay more for insurance than you would with good credit. Having a credit card isn’t necessary, but it’s the easiest type of credit loan to get.
You’re asking for trouble if you get more than one credit card, but it frequently happens. You get an offer to switch to a different credit card, with a higher credit limit and at a lower interest rate. You accept the offer and then fail to close the account for the other card and start using it again.
Using credit is dangerous and requires discipline. Use it for only what you need and pay the balance as quickly as possible. The minimum per month payment is usually designed to keep you in debt for as long as possible, so you should pay more than that. In fact, there’s no reason to keep a balance longer than a month if you can help it.
There’s a flip side to it, of course. If you set up a secured credit card as opposed to an unsecured credit card (which is what you mostly deal with), you’re paying against your own money while still building up your credit rating. If you find yourself in a position where you can’t make the payments, you can pay the outstanding interest from your money on the account and close it.
Paying Off Credit Cards and Loans
There are two types of loans that are nearly impossible to pay off: Home loans and car loans. The reason is simply because of the prices. Pushing those to the side, you need to focus on paying off other types of credit.
There are three ways to pay off credit cards and other types of loans (such as an equity loan against your home). One way is to pay as much as possible on the largest loan each month and another is to pay as much as possible on the loan with the highest interest rate every month. The third way, and it’s really the easiest way, is to work your way up from the loan with the smallest balance to the one with highest balance.
The reason the third way is the easiest way is because your number of monthly payments will decrease. Having a bunch of different payments, with minimum payment amounts, can add up to more than the balance of the smallest loan.
When I was young and newly married and as my family grew to four people, my family could not survive without credit cards because I simply did not make enough money to cover emergencies even as my wife worked when she could. My credit balances spiraled upward and out of control and nearly forced me into bankruptcy after 15 years.
It took a lot of hard work and a lot of sacrifices. but I managed to pay off all the credit (other than the home and car) using the third way. I soon found out that I had way more disposable income than before (which was close to zero) and I didn’t have the constant worry of how to pay the next bill. I also found that I could earn nearly a third of my pay and still be able to support the family better than I had before.
About the Author
RT Cunningham retired from the US military, sold everything and moved to the Philippines. He writes about some of his experiences on an infrequent basis at Untwisted Vortex – An American Living in the Philippines.