By Lila Quintiliani AFC ®
Military Saves Assistant Coordinator
Have you ever found yourself in the commissary a day or two before pay day with a full basket of groceries but a low balance in your bank account? So you pull out your credit card to pay, hoping that by the time you get your next statement, you’ll have the money to pay, or at least pay the minimum? Do you routinely pay only the minimums on your credit cards? Do you take cash advances to pay your rent or your auto insurance?
If so, then you are not alone. A recent survey by the nonprofit group Demos showed that 45% of families with annual incomes under $50,000 are relying on their credit cards to pay for basic needs such as rent, utilities, insurance and food. And while the average credit card balance is down, from $9,887 in 2008 to $7,145 in 2012, this dip may be because many Americans have had their access to credit reduced or even taken away.
It’s true that paying with plastic is convenient. I can’t tell you how grateful I was that pay at the pump gas stations existed when I had two babies in car seats and a deployed husband. It’s also true that some credit cards have nifty rewards programs. I was able to buy my mom a plane ticket so that she could see a sick relative because of the points I accrued with our card. BUT if you are not treating your credit card more as a “charge card” and paying off the full balance every month, then you are starting down a slippery slope.
Depending on your interest rate, that $200 cart full of groceries could take you almost a year and a half to pay off (based on an 18% interest rate with a minimum payment of $15 per month.) At the end of 15 months, you would have paid almost $25 in interest. And that’s only one trip to the grocery store. Add to that the trips to the gas station, the drive through and the big box retailer. And if you took a cash advance to pay your cell phone bill, then it probably came with a higher interest rate. And cash advances (unlike charges) have no grace period, so they start accruing interest right away.
Fortunately, there are some things you can do to prevent yourself from getting too caught up in the plastic safety net:
And don’t forget that help is at hand, whether at your local installation or Military OneSource.
Here are some other resources:
Tips for Getting out of Debt - MilitarySaves.org
9 Tips to Pay off High Interest Debt - MilitarySaves.org May Newsletter
Control Debt and the Real Cost of Credit Cards - SaveandInvest.org
Self-Directed Debt Elimination Tool – PowerPay.org
Saving For Emergencies – MilitarySaves.org