As Divas, we like pretty things: shoes, purses, clothes, makeup, jewelry…and let’s not forget about a beautiful vacation and dinners with our girlfriends. These things are so divalicious but they also cost money. There is nothing wrong with pampering yourself or treating yourself to nice things. However, issues arise when we indulge beyond our budget.
Credit cards can be quite useful for the money-wise diva, but they are a no-no if you are not responsible and disciplined enough to pay them off in full each month.
I want to share my personal experience with you about my lessons with credit cards and money. I learned the hard way how to manage credit cards properly.
Let me help you upgrade your thinking when it comes to money and help you get your wallet in order.
THE WRONG WAY
Credit card companies are in business because it is to their advantage to loan you money with such exorbitant interest rates. The wrong way to manage your credit cards is to treat them as supplemental income. That money is not yours! It should never be included in your budget. Credit card debt is just that…Debt! A debt that must be paid back. Due to the interest charges, that can be a daunting process that takes more time than you think.
My experience includes some shopaholic tendencies and many unwise purchases. To be frank, I was known in a popular jewelry store by first name because I was in there so often buying diamonds and other things I simply could not afford. I also spent a lot of time in my favorite store just walking around and browsing for hours. I would walk out $200 later and sometimes return again the next day. While that is an extreme example, many of you may also buy things that you neither need, nor can afford. I want to share my struggle as a cautionary tale in hopes that I can save you from this bad habit and help you learn the lesson without paying the price I had to pay.
I learned a lot of lessons the hard way by using credit cards the wrong way. The biggest lesson I learned is the power of the minimum payment. And mind you, that power is in favor of credit card companies. As an example, one of the credit cards (which is now paid off. Yay me!) had a balance of about $1,350 at one point. With an interest rate of 16.49%, the monthly interest charge was approximately $31.95 each month. That adds up, especially if you are making only the minimum payment. My minimum payment requirement at that time was $45. If you do the math there, subtracting my minimum payment but adding the interest charge to the balance, you’ll see that they only required me to put about $12 to the actual debt balance. It will take a very long time to pay off any amount of money by contributing a mere $12 and that’s how credit card companies make their money: by keeping you in debt!
I also learned how lots of small charges can grow into a huge debt balance. A fast food purchase here, some eye shadow there, add in a mani-pedi and an outfit and ooh that bracelet is on sale! It may not seem like a lot at the time but after just a couple years of small expenditures, my purchases grew into a whopping $20,000 balance spread out over seven different credit cards.
The larger the debt total, the more you are required to pay as a minimum balance. My seven credit cards came to more than $700 each month to pay only the minimum monthly payment. That is quite a bit to take out of one’s income, especially when there are other bills to pay. That large debt and large minimum payment amount made me feel controlled by my bills and ultimately my debt.
In fact, Proverbs 22:7 references that feeling by saying, “…the borrower is slave to the lender.” It actually made me quite miserable to work a decent full-time job and yet hardly have enough money to pay my bills let alone go out to lunch with my girlfriends. Author Henry Cloud says that “We change our behavior when the pain of staying the same becomes greater than the pain of changing.” Well, that’s exactly where $700 a month got me. I was sick of myself and the irresponsible way that I was using credit cards so I made the decision to stop using them until I got them under control and could be disciplined about paying the full balance each month.
THE RIGHT WAY
Now that my debt situation is under control, I am able to make my credit cards work for me rather than the opposite and have learned the right way to do it. Credit cards can be a useful tool for the financially savvy Diva. First, I strongly suggest getting and using credit cards only if you are committed to using them solely to your financial advantage.
The best way to use a credit card is to find one that has a benefit that you find useful. You can get cash back to boost your budget. Or, you can earn airline miles/points to upgrade your travel life. You can even collect points to trade for gift cards to your favorite stores or gas stations. The point is to make your use of credit cards truly beneficial to you while avoiding the disadvantages that are inherently a part of revolving credit.
I have one credit card that I use now and it gives me airline points. The true secret here is not to spend beyond your budget but to use the credit card as much as possible to maximize your benefit. You will avoid paying the high interest rate if you pay your entire balance every month and you will also avoid the sneaky debt pileup that happens when you add just a little at a time to your unpaid balances.
My trick is to use my credit card for the bills that I pay normally. And then I immediately make a payment to the credit card for the total spent as part of my bill paying process. I do this with groceries and toiletries as well. I keep in mind that the credit card is to be used only for things that I need to pay for anyway. That way, I stay within the budget for how much money I actually have to use and I also am able to get the most out of my card benefits. How nice it is to be able to fly round trip for free!
Just be sure to use self-control and to be prudent about your spending in order to avoid the burden of interest payments and to maximize your credit card benefits.
Denise Johnson is Copy Editor for The Diva Inc. Magazine. Follow her on Instagram.