Hey, everyone, let’s talk about credit cards or more specifically the fees we’re charged for spending more than we earn. This is a topic I’ve been putting off for a while, but if you’re retired, planning retirement or having trouble managing your credit card spending, it’s time to talk. I’m going to give you my thoughts on credit card spending and the cost of spending more than you have or make.
I’m not here to bash credit cards. In fact, when managed properly, credit cards can be really useful. But there’s a “trap” many of us fall into: Credit card companies make it too easy to overspend (spending more than we actually have or make). When we can’t pay the bill at the end of the month, well, that’s where the fees begin on any unpaid balances.
Banks and credit card companies call it “interest” but I think of it more as a Fine – a financial penalty for spending money you don’t have or haven’t earned yet.
Think about it. When you swipe your credit card for something you can’t immediately pay for with your current earnings, you’re really borrowing against the future. So, the credit card company says “Hey, you spent more than you made, so you’re going to have to pay a little extra for that privilege.”
This privilege is the interest you pay on the unpaid balance, which is the cost of overspending or as I think of it an “Overspending Fine”.
These “overspending fines” can really add up. The more you overspend and the longer you take to pay it off, the more interest “fines” you’ll accumulate. It can trap you in a cycle where a chunk of your payments goes towards these penalties instead of actually reducing what you owe.
Transunion Credit reports the average credit card balance is $6,580 and CNBC is reporting the average credit card rate is 20.12% APR. So, if I do a little math the average overspending fine is $1,323.90 per year or about $110.00 per month.
If you don’t know your credit card unpaid balance or percentage rate, take time in the next few days to get your statement out and find your rate and balance and do the math. I think you may be surprised just how much you’re paying in overspending fines.
Thinking of interest as a “fine” for overspending should be a wake-up call. It shifts the focus from just another fee or number on the credit card statement to a direct result of our spending habits. Calling it a fine might sound harsh, but It highlights the consequence of not managing our credit cards responsibly. It’s not some abstract percentage, it’s real money coming out of our pockets!
So, how to avoid this overspending fine?
- Spend less than you earn! Create a budget and stick to it!
- If you do use your credit card, aim to pay off the full balance each month.
- Be mindful of your spending habits. Are you using your credit card to buy things you really don’t need?
- Addressing these habits can help you avoid overspending and the resulting “fines”.
And if you find yourself paying a fine each month what can you do? Commit to:
- Stop spending more than you earn! You must create a budget and stick to it!
- Focus on aggressively paying down the unpaid balances to minimize future “overspending fines”.
- Consider strategies like balance transfers to lower your interest rates and reduce the fine amount while you pay down your debt.
- If you need help, find a qualified (preferably non-profit) credit counselor to help you develop a plan to get this debt paid off and get your spending habits back in order.
So, let’s change how we think about credit card interest. It’s not just a “cost of borrowing” it’s a fine for spending more than we’ve earned. By understanding this connection, we can become more conscious of our spending habits and take steps to avoid these unnecessary financial penalties.
So why do I think this is such an important topic for retirees and those planning retirement?
When I was planning for retirement, the biggest variable in our expenses was the credit card expense. Like many people our age we don’t carry much cash, so nearly everything we buy goes on the credit card. (We don’t use debit cards, which I’ll discuss “why” in a future post.) Our credit card bill typically is our largest monthly expense. I knew in retirement, once we were on a fixed income, managing our use of credit cards would become very important. There certainly would not be room in our budget for any overspending fines.
Our plan is to fully pay our credit card bills each month. We will do our best not to spend more than we’ve budgeted, but if something does come up, we have an emergency fund for these expenses. If for some reason our plan fails, I look at our paid off credit cards as a short term safety net to use while we adjust.
If you’re retired or getting ready to retire and finding credit card expenses to be a problem, I hope this article has been of some help. Now is not a time for wasteful spending. Overspending fines are wasteful and should be avoided. It’s not too late to change any bad spending habits you have but you must start today. Quit spending more than you earn and aggressively work to have no (zero) debt in retirement so you can fully enjoy your golden years and have the retirement you’ve always hoped for.
What are your thoughts on this perspective?
Does it change how you view credit card spending?
Let me know!
Thank you for taking time to read this article.
If you would like, please leave a comment below or you can email me at www.feedback@wewaonthenet.com.
I’m also starting a YouTube channel, www.youtube.com/@wewaonthenet where I will be discussing various retirement topics and topics I come across that I think may be of interest. Check it out!
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