Transformation into SUPER SELF would not be complete without financial freedom and one of the first steps towards financial freedom is freedom from credit card debt on credit card company’s terms.
So let’s break it down into baby steps.
There are 3 types of credit card users:
1️⃣ use credit cards for all purchases because of the benefits credit cards provide in bonus points, airmiles, exclusive accesses, and similar. This requires returning 100% of the credit spent at the end of each month. If you’re in this category CONGRATULATIONS, you are reaping the benefits without profiting the credit card company with credit interest.
⚠️ Although you might want to evaluate the yearly cost of this credit card vs the benefits that you actually use.
2️⃣ use credit cards to buy one-off bigger purchases that would otherwise require saving for months before purchasing a desired good and in general can repay the full credit in 3 to 6 months. Not great, but we get it, sometimes we just need a new TV, to repair our car or to go on a holiday and get away from daily stresses.
⚠️ Before making any of such purchases, consider DO YOU REALLY NEED IT THAT MUCH that you agree to pay 18–25% more for it. Because it all comes down to the price you are willing to pay for using a good or service now versus in the future when you pay with your earned (not borrowed) money, e.g. if you buy a TV for $3,000 on a credit card that you return in 6 months, you will actually pay $3250–3450 for that TV and the longer it takes you to re-pay the credit in full, the more you will essentially pay for that TV. Move on to the section where we explain the principles of interest rates and re-paying credit.
3️⃣ use credit cards to re-pay credit and constantly spend more increasing credit debt.
⚠️ Sorry, but you can’t continue like this. You need to immediately STOP LIVING beyond your own means otherwise you will never have financial freedom. Unless it is essentials like food, utilities, a house mortgage, or an emergency, you should STOP spending money that you don’t earn. The next section is for you.
👉WHAT YOU MUST KNOW ABOUT CREDIT CARDS👈
❗️You MUST re-pay credit as soon as possible.
The monthly credit payment is a sum of 2 fees: principal amount and interest. It means that every month you re-pay a certain amount that you borrowed + interest. The more months you have credit, the more interest you pay.
❗️You MUST always pay the maximum amount you can and not the minimum that is required by a credit company:
It is in a credit company’s interest that you pay the minimum and not the maximum because you are re-paying only a tiny portion of the principal amount and it will take you very long to re-pay the total amount. Which means that you will pay them A LOT of interest.
Let’s use the same $3,000 credit with a 24% interest rate as an example:
👉If you choose to pay $1,000/month, you will have returned credit in 4 months & paid $126 in interest.
👉If you choose to pay $500/month, you will have returned credit in 7 months & paid $229 in interest.
👉If you choose to pay $250/month, you will have returned credit in 14 months & paid $465 in interest.
👉If you choose to pay $125/month, you will have returned credit in 34 months & paid $1,125 in interest.
👉If you choose to pay the 3% minimum required by the credit card company, you will return your credit in +15 years and paid $4,887 in interest!!!
Here’s a calculator that you can use to work out your personal situation.
The lower the monthly amount that you choose to pay = less principal amount you return = you pay more in interest = happy credit card company, not so happy you.
If you want financial freedom:
❗️Always pay the maximum you can to return the credit as soon as possible.
❗️Only use credit cards as described in 1️⃣ and 2️⃣ cases.
❗️Double triple evaluate purchases that you can’t afford from your earnings: are they really essential and worth acquiring at the expense of your future financial wellbeing.
❗️And of course, if you can find a credit card that offers an interest-free period, go ahead and use it to re-pay your current credit card debt, JUST DON’T SPEND a single cent on top of that until you return your current debt❗️❗️❗️
Bear in mind, this is about credit card debt where the Annual Percentage Rate (APR) is huge that is above 12–14%, and not about other types of loans where APR is between 1–4%.
Your financial situation will likely improve massively if you stick to these simple principles for using credit cards.