Everyday we are bombarded with images and messages that are intent upon getting us to open up our wallets and exchange it for goods and services. Generally, it is more often goods than services and should our wallet be a bit... empty, that's okay because we have a little plastic rectangle that will give us what we want when we want it. Should that little plastic rectangle not be "big" enough, we can always go out and get more of them.
These little plastic rectangles are promoted as being a good deal. In fact I'll even go a bit further and say they are marketed as being a fantastic deal. A bank, other financial institution or a merchant will extend you a line of credit, often in the amount of thousands of dollars and you only have to make a minimum payment of say, 1% of the balance and interest, though sometimes it is only the interest.
Buy now, pay later. What a great deal... or is it?
Currently, in the US, the average savings account earns less than 1% interest. When you put money into a savings account, you are basically lending the bank money which they in turn lend to others. As of today in the US, the interest rate on a car loan is running at about 3% and the average mortgage rate is about 4%. Well, the bank does need to make some money so it makes sense that they would charge a bit more in interest than what they pay out. These are also secured loans so the bank can afford to offer lower interest rates on these types of loans. If you don't pay, they seize your house or your car and can at least recoup some if not all of their losses by selling them to someone else.
Currently, in the US, the average credit card interest rate is 18%. Now granted, the bank is taking a bigger risk but that is quite a jump and the interest rates for millions of Americans is about 10% higher. Hmm...
I have heard the argument from some people that they use their credit cards to earn "points" that can be converted into cash for other stuff or even be applied as a credit on their account. The average percentage on those cashback cards is 1-3%. This means if you charge $1,000.00 you will get $3.00. Now, $3.00 is $3.00 but consider this. If you just "happen" to be a little short when the bill comes and simply pay the minimum this month and pay it off in full the next month (and you have the APR of 18%) you will pay an additional $15.00 due to the interest.
Oh but wait... you got "cashback". Whew! You are now only out-of-pocket $12.00 as opposed to $15.00. Of course, if you would have simply paid it immediately, you would have paid only $1,000.00 out of pocket instead of $1,012.00.
Of course, perhaps the $12.00 is not that big of a deal. You can handle that sort of loss rather easily but you see, more than half of the credit card holders in the US do not pay off their credit cards each month. If they only make the minimum payment they could end up paying nearly $1,000.00 or more in interest over a period of more than nine years. You ended up paying nearly $2,000.00 out-of-pocket for $1,000.00 worth of... stuff. Perhaps it wasn't such a good deal after all.
Since January 2011, my husband and I have been intentionally focusing on getting rid of our non-mortgage debt. Truthfully, our progress has been a bit slow because during that time we've had some pretty big obstacles thrown in front of us. That same year, I had to retire from my job due to medical reasons. Then the following year my husband lost his and was underemployed for 13 months. I saw underemployed because he was always picking up freelance jobs here and there but it wasn't enough. Like most 50 somethings, he had to take a substantial pay loss when he finally did get a permanent job once again. It was during that time, that God opened the door for him to go to grad school as well, however, he weren't supposed to borrow that money. He was supposed to trust God to bring in the money whether it was through scholarships, additional work or both. It has been both. This meant we could not pay down debt quite as fast as when we had first started out but we have faithfully done what we could to avoid taking on additional debt as much as possible and paying more and more down each month.
The finish line is in sight now. It is about 18 months away. I have to say that I am getting rather impatient and have to constantly remind myself of how far we have come. I have to remember the fable of The Tortoise and The Hare as well as its moral: "Slow and steady wins the race."
This blog was originally meant to encourage people who are facing financial challenges but as I wrote that last paragraph, I thought about how this is applicable to our Christian life. We may face some dark valleys at times and become discouraged. Or we may become impatient and want to jump in and stir up things too quickly, doing things our way instead of God's way. We must remember to heed what God tells us to do, do it and trust that things will come to pass in His time and in His way. When you think about it, our way is really no way at all for it will only land us in dead ends.
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