Thursday, August 2, 2012

Money Rule to Live By

As I'm sure you've learned from previous posts (canceling our dishskipping bill payments), I'm a bit of a rebel. I mean, I've been known to rock a mohawk, I (try to) play guitar, and I don't always comment my code (computer programmer humor...nerd, I know, I know). However, even a rebel has to have some rules. And this post is about one of mine.

Rule #1 - No Revolving Credit Card Debt

Let's start with a definition because what's more fun than rules? Definitions. So what is revolving credit card debt? For the purposes of my rule, any balance on my credit card that I do not pay off at the end of the billing cycle. Excluding 0% APR balances, of course (but only if I have the money sitting in my savings account earning interest until the 0% APR period runs out!).

Disclaimer: I don't want you to think I'm looking down from my ivory tower. My tower is actually made of concrete because I'm a man of the people. Ok, now where were we? Seriously though, I understand how lucky I am to have made it to this point in life without amassing a pile of credit card debt or marrying into it. There are any number of things that could have happened to turn things the other way. I'm just trying to do what I can to keep it from happening to others (younger brother) before it is too late.

That being said, I avoid breaking this rule like the plague. A good (possibly, I just thought of it) way to think about credit card debt is like the opposite of a sale. Instead of saving money off the purchase price, you are paying money in addition to the purchase price. I guess that would make it a buy instead of a sale. So, now we have a store saying come on down to our blowout buy and get things for as high as 25% on (get it, instead of off, opposite humor, sometimes not so funny). Now I know how excited people, Mrs. K and I included, get about sales. We generally are less excited about full price items. Just think of how exciting it would be to pay 25% more for something. Insert random idiom about watching paint dry, grass grow, etc.

Let's put down some numbers to make this more concrete (like my tower). Say you bought $500 worth of goodies on a credit card and didn't pay it off. Assuming the card had the current average interest rate of 17% and the minimum payment was $15, this credit card calculator says it would take nearly four years and $681.49 to pay it off. Those $500 worth of goodies cost $181.49 or 36% more than they would have if they'd just been paid for up front. Crazy, right?

If you are currently following this rule, congratulations.  Never break it and you will be ahead or at least should be ahead in the financial game. For everyone else, it's understandable, life happens. The important thing is to work towards getting rid of that debt.  Remember, it is the plague and the plague is bad.  This is not an ice cream plague, it is a bad things plague. However, it is still a curable plague, if plagues can be cured, otherwise that kind of throws off the whole plague thing I have going here. Anyway, focus on trying to eliminate that debt, highest rate at at time, so that you can check this rule off and move on to the next because even rebels like us need to follow some rules.

What is your number one personal finance rule?


  1. I'm the same credit card balances carried over ever. I learned about that the hard way when I was doing aggressive PPC advertising several years back. I was spending so much that I often had to wait for the next month's commission check to pay off the balance. In the meantime, the interest charges were eating away at my profits.

    By the way, I never comment on my code, ever. Super rebel here lol. Maybe that's partly why I gave up on my programming career to focus on website marketing instead.

    1. And now you are going from website marketing to TV star. :D