I’M Clueless When It Comes To Money. Please Help!

Posted: April 15th, 2010 | Author: | Filed under: Debt, Tips | Tags: , , , , | No Comments »

Here’s a heartbreaker for you. It’s a posting from the Personal Finance SavingAdvice forum :

I have about $13K in credit card debt with approximately 9.2% APR. I recently got approved for a credit card with 0% APR on balance transfers for 15 months. I got approved for $7,500 only. If I call the credit card company, can they increase my credit limit to $13K? I would really like to transfer all my debt into that new credit card and pay off as much as I can before the 15 months expire.

I have $2,500 that I can use to either use to invest or pay my debt with. I am also expecting $3K from my work stock in May. What should I do with the $2,500 and $3K? Should I invest them or just use them to pay off my debt?

This post reminds me a lot of my own bad money situation a few years back. I too had some money, but not enough to pay off my credit card debt. I also considered investing it instead of paying off the debt. I figured that I could not pay off all the debt in one shot with this money, but if the money grew in the stock market I could use it then to pay off the debt.

Then I realized that it would have to grow at about 50% per year in the stock market before I could pay off the debt, and that the debt would only grow while I waited for the stock market to rise. Besides, if the market took a tumble I would be even further behind.

But here’s the truly sad part of this story -it appears further down the thread, when the user posts a reply:

Thank you all so much for the response. I make $2,330 a month net. I pay $600 for my car, $500 for rent, $60 for cellphone bill, $110 for car insurance, $110 for student loan, $140 for gasoline, $10 – Netflix, $15 – XM radio subscription, $400 credit card. The rest is my budget for food and entertainment. I have $1,000 in emergency fund. I have around $3K stock option which I’m planning to cash out in May. I have $10K in 401K which I will never touch.

Check that out – this person pays more for his car than his rent!

I never paid that much for my car, but that’s probably because I had a 5 year loan and stretched the payments out. I may have paid more over the term of the loan than this person, but it’s the rest of his expenses that hit home for me – $60 cell phone bill, $10 Netflix, $15 XM radio and $400 in credit card payments – per month!

That $400 is paying for things he didn’t need, as well as some spending while unemployed (I edited that out of the quote for the sake of brevity). I too spent a little bit here and a little bit there on things I didn’t need, while paying for the things I already bought (and didn’t need).

The thing is that we get in the habit of looking at $10 here or $15 there and thinking it’s chump change. “It’s not enough to matter,” we tell ourselves. But look at the bigger picture:

If he cut Netflix and XM totally, and switched to a Tracfone (for example), he could save about $80 a month with that alone. Here are some other ways to look at that $80:

  • An extra $960 over a year.
  • Over 7% of his 13,000 in credit card debt.
  • An additional 20% of his $400 month credit card payment.

This forum posting illustrates perfectly that it’s the big picture that matters, and that small actions can make a big difference.

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Is Dave Ramsey Right? Are Credit Cards the Cigarettes of Finance?

Posted: June 7th, 2009 | Author: | Filed under: Credit | Tags: , , | No Comments »

I’ve been listening to Dave Ramsey’s radio show on my way home form work the past couple of weeks, and I must say I really enjoy it. But he does keep saying something that kind of bothers me a little:

“Credit cards are the cigarettes of the financial world.”

It sounds good, and certainly gets the point across, but is it really true?

I mean, strictly speaking, cigarettes kill the user over time. There are no healthy benefits to smoking cigarettes.

Contrast this with credit cards and the comparison falls apart. Credit cards don’t necessarily kill (financially speaking) the user. Credit cards, unlike cigarettes, can be used in moderation without negative effects. In fact, rewards cards can be beneficial.

I think misuse of credit cards is the cigarette of personal finance.

You can certainly ruin your financial health misusing credit cards, and people do become addicted to them, but they are not always bad for everyone all the time.

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