My high credit card balance has always been a nagging thought in the back of my mind. I would think to myself, wow, if I could just get rid of this credit card I would be able to save lots of money. It took a few years, but I realized that the credit card and it’s high balance wasn’t the problem. The problem was something else.
My History With Credit Cards
Like most pimple-faced youngsters who feel more mature than they really are, I filled out a credit card application as soon as I turned 18. If I remember correctly, the limit was around $650 and the interest rate was around 15%. Had I stopped to read the fine print I would have noticed that the rate could be jacked up to the mid 20’s if a late payment occurred.
I recall purchasing a 3DO video game system with that first credit card. Throw in a game or two and the card was already maxed out within a month of getting it. I would periodically pay some of the balance but with only a part time job and being more interested in having fun than paying my bills I fell behind and the card subsequently went into collections.
I’m pretty sure I had to receive a bail out from my parents when the toughly-worded legal letters started coming in. I can’t remember but I think I swore that I would live within my means and never again let a debt fall into collections.
The Current Card
I’ve had an account with my current credit card company since 2007. I remember why I switched from the previous company (Bank of America). After being a perfect customer for years, that is, someone who carries a balance and pays on time, I was 1 day late with my payment.
To be honest I had mailed the payment 2 weeks before the due date but they didn’t receive it until a month later, how weird. I made an electronic payment as soon as I realized my check hadn’t cleared, but it was a day too late.
They decided to move my interest rate from around 12 to 29 percent.
I immediately went card shopping and found a new company that would allow me to buy stuff on credit. As far as credit card companies go, they have actually been pretty decent. My rate is 6.2% and they don’t flood my mailbox with those blank checks.
I think the last time I had a $0 balance was around 2002. That’s 13 years of carrying a big balance, paying interest and thinking to myself, if I could only get rid of this credit card I could save some money.
It’s time to finally be honest with myself.
The credit card isn’t the problem. My spending is the problem.
That is what has been holding me back from saving and securing my future.
Looking Back A Year
My credit card company only shows balance histories for the past year. On 4/2016 I was carrying a balance of $15,397. Over the course of the next twelve months I paid them $13,057.
Whoa, I could have almost paid off the whole thing with that amount.
For example, I picked out one month and added up the amount spent on entertainment. This is mainly movies / TV shows via Vudu, a Netflix subscription, Udemy classes, and an online video game. $317. I spent over Three Hundred Dollars to sit in front of my TV. In one month.
The interest rate charges for a year is another $1000. I paid a corporation $1000 so I would be enabled to spend $300 a month watching TV, among other things. This sounds ridiculous when you think about it.
Maybe if that $1000 in interest was for a student loan or something to better myself, but no, this is for watching strangers do make believe in my living room.
Movies and TV shows weren’t all of the money spent of course. Just picking some random examples here: There was the $875 tablet computer I bought in the summer, the $600 in new tires (actually worthwhile) and $600 for eye-wear (I can afford designer frames, I have a credit card!)
As part of my financial awakening I have analyzed my spending patterns and I’m in the process of cutting out needless things. I’m saving money by preparing meals, taming my entertainment addiction and trying to stay clutter free.
Kill the Balance
My current plan is to have this credit card paid off by the middle of November. That means a reduction of $1500 each month.
There are a few more days left for me to binge spend in February, but as of today I have lowered the balance by over $2000 this month.
Yes, it is in the 13’s!
Plan For Large Purchases
After it is paid off I will need to buffer my savings account for those expected but intermittent expenses. There are always Christmas presents that will need to be purchased (perhaps less toys and more stocks?).
The unexpected will need to be covered as well. I’ve been lucky that my 10+ year old car is still going strong, but I do know parts wear out and I need to plan ahead.
Keep The Card
Dave Ramsey will probably want to kick me in the face, but I think I will still keep the card around after it is paid off. There is no annual fee and I like being able to use it for on line purchases.
I would rather have a hacker max out the credit card that I can do a charge back on rather than my debit card which could jeopardize my mortgage payment and other bills. Why did it take me so long to figure out the real source of my problem? I guess it’s better that I realize it now while I still have time to save for retirement.
Thanks for tuning in. Until next time, keep saving.