Credit Cards For The Newly Frugal
It’s called making a change in your life; we’ve all done it. Sometimes we do it more successfully than other times, and for different reasons, but we all make changes.
With the economy the way it is, it’s no surprise that more and more people are wanting to live a relatively frugal lifestyle. Some are coming into it blind, having been spendthrifts for years, and now moving to the other extreme. Some people just want to tighten their belts a little; to get control of their finances before they get out of control.
Many of these people are coming in with existing debt, so they aren’t starting with good habits, they’re repairing the damage done by bad ones. Their credit cards are limited out, they may even have title and payday loans out.
It’s easy to say pay off your debts, but it’s sometimes not so easy to do.
Let’s start with credit cards, so join me after the cut.
You’re trying to save money and your credit card is limited out:Â what do you do?
Use It.
I know, it sounds counter-productive doesn’t it? Why generate more debt when what you really want is to get rid of debt. It’s all in how you look at it. When you use your credit card you generate new debt, and new credit card debt is usually interest free for the first month. So if you already have credit card debt what you want to do is trade your old debt (which you’re paying interest on) for new debt which you don’t have to pay interest on for the first thirty days.
Now this works best with lower limit credit cards but the principle is generally applicable.
Let’s say you have a $2000 limit and the card is maxed out, and you are normally paying about $200 a month on your card, just to cover the minimums. Let’s also say you spend about $900 every paycheck on things you could pay for with your credit card, but you don’t use it because it’s always limited out.
What you do is put $1000 on your card every paycheck – and spend the same $900 you would normally spend – but now you put it on the card rather than paying cash or using debit or writing checks.
If you can keep doing this you will clear the card inside of a year, without paying any more money than you currently do.
Yes you’re going to be running a balance, but your payments won’t be eaten by the interest, instead you’ll be paying the principal.
One of the key features that makes this work so well is that you’re paying twice a month, but they’re only charging you interest once a month.  When you make your regular payment, they apply it to the interest first, and then to the principal. When you make your mid-month payment, they haven’t calculated the interest yet; so it all goes on the principal.
This means that when they calculate the interest for your next bill they will be calculating it on a smaller balance, so more of your next regular payment will go to the principal. Second payments are your friend.
The real lesson to take from this is the same one you should take from every posting, the real key is to control your finances and not let them control you.
Feel free to agree or disagree in the comments below.
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