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Saving & Investing - Head Matters


1. Why Save and Invest

c. Saving and investing to reach your goals is better than using a credit card

We are often tempted to use our credit cards to meet long-term and short-term goals.  After all, isn’t it the same thing?  NO!  What happens if you just decide to put that big screen T.V. on your credit card but cannot afford to pay your complete bill when it is due? Let’s compare the costs.

   Original cost Interest rate Monthly payment  Time until it's paid off  TOTAL cost
Use cash   $1,000 0%  $0  Immediate  $1,000
Use a credit card  $1,000 18%   $30  3.9 years $1,396

Obviously, if you pay cash on a $1,000 big screen T.V. that is what it will cost - $1,000.  If you put it on your credit card and can only make your minimum payments, you could be paying a total of $1,396 and it would take you almost four years to pay off.  During this time, you could have been saving about $100 a year rather than pay the credit card company!  You can see that saving until you have the total $1,000 would be the best financially.  And you would save an ADDITIONAL $396.

We go into much more detail about credit cards and other loan types in the Credit Course,  but let’s just look at a few things to remember about purchasing items with credit cards:

  • The higher the interest rate and the longer the loan term, the higher the cost of credit is to you.  If you must use credit, try to pay more than the minimum payment amount. 
  • Watch what you charge per month to make sure you can pay the total balance when you receive your monthly bill.
  • Always read the fine print before you send in an application for a credit card.
  • Don’t apply for more credit cards than you need.  Too many credit cards and loans can hurt your credit score.
  • Pay the bill as soon as possible when you receive it – make sure you are never late.  Late charges are very high and could affect your credit report.  This can also prompt your credit card company to increase your interest rate.
  • Don’t go over you limit as you will probably receive a fee for that as well.
  • If you are not sure what your interest rate and terms are for your credit card, contact the credit card company immediately to find out!
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