Should You Pay Your Credit Card Debt In Full Every Month?

By the sheer number of individuals owing money, credit card debt is by far the most common form of debt in the world today. It is so common that many people don’t even class it as a liability any more – something that was unheard of in your grandmother’s day. On the one hand, a credit card represents a great way to pay for everyday items, but on the other hand, it can be way too easy to spend more than you should. In any case, all your purchases are neatly tallied up for you at the end of every month, when you receive your account. The question is, should you pay your account in full (assuming you can afford to) or should you deliberately carry over a balance?

On first glance the answer sounds like it ought to be a clear yes – after all, out of the debts you may have, your credit card will undoubtedly be charged at the highest rate. Home loans come in at around 7%, personal loans and car loans at about 9%, while credit companies usually demand in excess of 20% on balances owing. And that doesn’t even include fees yet. But with some careful accounting, you should be able to take advantage of the interest-free period on your credit card – and come out on top.

In theory, it’s simple – let’s have a look. By carrying forward your credit account at no extra expense, you can instead put your income towards a mortgage or a car loan, thus reducing your active debts and lowering the total interest you will pay on those loans. It sounds good… and it can be good for your personal finance – but it takes some very careful accounting to not end up tripping over your own feet and ending up in a snowstorm of debt.

The interest-free period on most credit cards is a 40- to a 59-day window during which no interest is charged on your monthly account. When a company states you have “up to 59 days interest-free”, what they actually mean is that they won’t start charging interest until 59 days from the start of the contract month – so if the month is 30 days long, you will start being charged 29 days after the month has finished. Provided you pay your balance in full before those 29 days are up, you pay nothing extra at all, it’s essentially an interest-free loan. “Great!” many people are thinking.” “An interest-free loan – I could sure use that to my advantage.” Yes, many people can – but of course, the credit card companies make heaps of money out of gullible credit card holders who rack up enormous debt to them through non-careful management of this quick-to-go-wrong financial arrangement. And you don’t want to be one of the gullible ones!

Let’s just take a look at how this could work out to your advantage, if you can keep all the balls in the air and don’t fall behind with the interest-free repayments. Say your account has come in at $1200 for the month of March, and you have a 55-day interest free contract. You could pay it off straight away, but what if you hold onto your money for as long as possible? With 55 days from the start of the month you would have until the 24th of April to finalize payment – that’s a little more than 3 weeks.

Option 1.

You could keep your $1200 in an interest-bearing savings account. In 3 weeks it could earn about $5 depending on your interest rate; it’s not much, but over 12 months that’s an easy $60 that the bank won’t be collecting instead.

Option 2.

Pay off another loan partially or fully – but only if you are confident that you can make the money up again on time! Even a single extra $1000 payment into a typical mortgage can save you between $2000 and $3000 over the life of the loan. Do this several times, and you are well and truly winning.

Of course, this system relies on you keeping close track of your spending. So here are a couple of tips to help you keep a close track of the “money in, money out” in your life.

1. A Budget If A Must

The most basic form of money management is a budget, and everyone should have one – that includes you. Despite credit cards being a potential way to get ahead in some areas of your finances, they are still not a substitute for wise spending in line with your regular earnings. If you are constantly spending more than you earn, using your magic plastic card otherwise known as a credit card, and not even keeping track of the consequences, you will be an ideal candidate for spiraling credit card debt. Before you even think about getting a credit card and doing clever things with it, make sure that you are capable of keeping a thorough track of your earnings and your spending. What you want to see is that your spending never outweighs your earnings. If you want to use a credit card to make use of its interest-free loan potential, you need to be able to keep a basic budget first.

2. You’ll Need Impeccable Self-Control

Let’s not get too philosophical here, but a lack of self-control is one of the most common ways in which people get into credit card trouble, no matter how squeaky clean and sensible their original plans. Self-control means not whipping out and swiping the plastic without thinking. Sticking to your budget (see above) requires a reasonable amount of self-control and if you don’t trust yourself, maybe it’s a bad idea to be attempting to use credit cards to get ahead – maybe you should be paying off your debt in full every month after all, just so that you get off the credit card train as soon as possible.

Not Paying Your Credit Card Debt In Full Every Month: Is This Really For You?

Not paying your credit card debt in full every month in order to benefit from the interest-free period is only something that you should attempt if you are confident with money and with your own budget and finances. If in any doubt, just pay that balance off every month, and save yourself the potential headache and scary debts that you could end up with if you don’t play your cards right – literally! But, if you’re the sort who’s got every last cent mapped out per month, and you know you are earning enough money to actually cover all of your expenses in due time, then you can make use of this handy financial tool to your personal financial advantage.…

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What Are The Pros and Cons Of Credit Cards?

A credit card can act as a great financial tool if used correctly. But if you do not use it carefully, high rates of interest and additional fees will make it worse for you. Credit cards have both pros and cons that are discussed below:

Pros:

Finance Products Free Of Cost:

There are some credit cards that come with interest-free loans on purchases as well as balance transfers when you buy it. It is for a limited period usually for 6 months. You should pay off the minimum payments monthly and clear off the balance before the offer of 0% ends. If you do not then interest will be charged.

Earn Rewards While Spending:

You can earn money by using your credit card as some cards offer cash back, loyalty points as well as gift cards and other merchandise.

You will earn more rewards if you use the credit card very often. The rewards can be redeemed or you can save it for bigger redemption later. It is beneficial if you clear your bill completely, or else the interest that will be charged will be much more than the reward’s worth.

Build Up A Credit:

If you use your credit card properly, then it will aid you in building a good credit line. So make purchases with your credit card and pay that off timely to maintain a good credit history. Good credit will benefit you a lot by making lenders lend you more likely and offering better rates of interest on mortgages and auto loans. You future applications for loans will be hugely affected in a good way.

Do Not Have To Keep Cash

No need to be worried about the cash you have with you. Most of the places accept payments via credit cards. So you do not have to take out cash from an ATM before stepping out. But keep a proper track of your available balance so that you are sure that it covers the cost of what you will be buying.

Keep A Record Of The Expenses:

A credit card will provide you with a record of each and every purchase made. You can go through the monthly credit card statement and this will aid you to plan your budgeting easily.

At the end of a year, summaries are also sent by credit cards which are a good resource for chalking out your taxes. Moreover, whenever you swipe the credit card, instant alerts along with the detailed amount of available credit and current outstanding are sent to you through SMS and e-mails.

Cons:

Ease Of Overspending:

Credit cards are easy to use. So people easily overspend. If you get tempted and make all your purchases with your card credit, your bank balance may stay the same but you will be overspending.

You will fall into huge debt if you use the credit card without keeping a track on the purchases. Never spend more than you can pay off in order to prevent high rates of interests from getting applied to future credit card payments.

Paying Only Minimum Due:

Each time you make use the credit card, debt will be created. Limit the growing debt by clearing the balance every month. But there is a minimum due that is present in every credit card bill statement.

You should not get deceived by it and believe that you only have to pay off that amount. A minimum due is actually the least payment that you are expected to make by the company in order to receive continuous credit facilities. So if you just pay this amount and continue purchasing items and making payments with your credit card, your debt will keep on growing.

Hidden Charges:

In the beginning, a credit card may seem to very simple and easy to use. But slowly when you will start using it, you will find that the low interest rate was temporary. So do not pay off more interest than you have expected. Hidden costs such as taxes and joining fees, fees for renewal, processing, and late payments will make your overall expenses huge.

If you miss any monthly credit card payment, then you will have to pay for a penalty. Making continuous late payments will decrease the credit limit of your card. This will create a negative effect on the credit score along with your credit prospects in the near future.

Negative Impact On Credit Scores:

The way you make use of credit card will directly impact the credit score. So if you keep huge balances and make late payments, the credit score will definitely get impacted. Thus the chance of availing any approval and best rates for personal loans, auto loans, and mortgages will also get reduced.

Huge Interest Charges For Late Payments:

Buying, not paying and overspending will carry your balance and thus you will have to pay off the purchase amount along with the interest that will be charged on that purchase.

Carrying a balance forward will always make you pay a little more. If you keep on delaying immediate payments after any purchase, a huge balance will grow up and it will be beyond your control.

So at first, you should understand why you require a credit card and then you should get one accordingly.…

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Why Should You Take 401k Loan?

Every individual keeps an emergency fund that can be drawn out when they face any unplanned expenses. But most often a shortage of cash flow happens during one’s requirement. For some people savings in the 401k loan is their biggest financial asset for retirement. Discussed below are the reasons for taking a 401k loan.

Easy And Fast Option:

In most of the plans of 401k, a loan request can be made easily and very fast rather than going for a loan from a commercial lender. It requires no long application or even check of credit history. It normally never generates any inquiry against your credit and affects the credit score.

There are many of these loans that will let you make loan requests with the help of few clicks on an online portal. One of the innovations that have been adopted now by some of the plans is the use of a debit card through which several loans can be applied in small amounts instantly.

So there are no qualifying needs to take a 401k loan. This will help those employees who may never qualify for any commercial loan based on their credit score or present financial status.

Flexibility During Repayment:

For most of the loans taken from 401k, an amortizing repayment schedule of 5 years is usually specified by regulations. But you can repay the loan faster without any paying any penalty for prepayment. Most of the 401k plans will allow loan repayments to be made easily through some payroll deductions.

The plan statements will show credits to your 401k loan account as well as your principal balance that is remaining similar to a regular loan statement of a bank.

So if you take a loan to purchase a home, you may have till 10 years to make the repayment along with interest. Loan payments will be deducted from the paycheque, thus making repayment convenient as well as consistent.

Low-Cost Option:

If a huge financial setback has affected you and has declared bankruptcy, then there will occur a drop in the credit score. This will make it tough to avail credit at reasonable rates.

In situations, where a very low credit score will lead to the rise in the rate of interest such as 2-4% higher than the normal rates, 401k loans will provide you with a less costly option.

But remember this that the interest that you will be saving by selecting a 401k loan over any other bank loan will still not balance the earning loss from taking your money out. You may also face penalty tax for making use of the funds.

The rate of interest on a 401k loan will be lower than those loans that you could have obtained through a commercial lender or a credit card, making repayment of loans cheaper.

Beneficial For Retirement:

When you make repayments to the 401k loan account, the repayments will be allocated back to your investment’s portfolio. You will be repaying a little more than you borrowed from the 401k loan and this is because you have to pay the interest.

The loan will produce a neutral impact on an individual’s retirement if any of the lost earnings from the investments match the paid interest that is earning opportunities are balanced by each dollar through interest payments.

If the paid interest exceeds any lost earnings made from the investments, opting for a 401k loan will actually increase the process of retirement savings.

Smart Investment:

If purchasing a home or financing your education requires you to borrow from a 401k loan then it will be worth considering under some circumstances. For the homebuyers, the period of repayment is extended often.

For education, it means investing in yourself. So higher earnings come from it, you can save a huge amount for your retirement. You only need to be sure that the investment, be it a house or an advanced degree is very close to a proposition that cannot be missed.

Secured Job:

Always have a good feeling regarding your employment situation before borrowing from a 401k loan. If you leave or lose your job, you have to repay the balance of the loan within 2 months. IRS will also label that money you have taken out as an early withdrawal.

This means a 10% penalty will hit you and you will owe some income taxes on that amount. You need to take into consideration the projected income during the 5 years period of loan repayment.

Payments from a 401k loan are mostly taken after tax-basis out of paycheque. So be sure that you will be able to continue without that money taken from the take-home payment.

So it may be difficult to focus on your future when you currently face financial pressures. So just stand by your decision of borrowing from a 401k and avail it.…

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