Consumed by consumer debt?

Compounded interest on your credit card debt are always working against you. Logically, living with high debt can create a cash poor situation. Unfortunately, debt and lifestyle go hand in hand in American society. When you use debt to fund a consumptive lifestyle, not only do you have the consumptive lifestyle working against you financially, but you also have the additional burden of debt working against you financially. Both should be avoided like the plague!

Avoiding the use of debt is incredibly difficult because the promotion of credit card use has made any household item so easy to obtain and the temptation to use credit or debt so overwhelmingly difficult to resist. Credit card companies are spending hundreds of billions of dollars to entice each of us to spend and to use credit with cards that make spending "easier", and those amounts are a pittance when compared to additional advertising dollars of retailers.

Keeping your debt burden as light and as cheap as possible is the key to a more secure financial freedom. Are borrowed money a good investment. Almost never. Currency may or may not increase in value, but inflation and interest, borrowed money is hardly a good choice. If you have to repay your credit interest, then certainly not.

Likewise, debt on a house should be paid off as fast as possible, because that amount of interest you’re paying over time is huge. If you paid only your minimum payment for the 30 years on your mortgage, you'll pay twice as much as that loan just in interest!

If you buy a big house with so large a mortgage payment that you don’t have any money left over for other expenses you are also cash-poor. The house might appreciate more than a smaller house but all that money tied up in a non liquid asset doesn’t help you pay the doctor bills.

But having said that, let's come back again to consumer debt. For most people, when it comes to consumer spending and when emotion and logic are at odds, emotion usually wins. You will always feel the urge to buy on impulse. Maybe it’s on sale, maybe you think there won’t be any later, or maybe you’ve just convinced yourself that it’s a super smart purchase. Awful, isn’t it? And that's why it is practical to have a controlled shopping list. Buy only what you need, and make sure that when the credit card bill arrives, you can pay it off in full.

Conclusion

Remember, credit card companies charge a high interest rate (between 18% to 24% interest) on all those purchases if its not repaid immediately.

Today's Bottom Line

According to a banker in the banking industry, a person who uses his or her credit card for convenience sake and pays the debt off each month is known as a "deadbeat".

Calculate your credit card loan interest as well as your compounding interest with our calculators.

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