The Real Cost of Credit Card Debt

I was astounded not long ago when I discovered how much a $5000 credit card balance actually costs the cardholder over time. (I like doing this weird kind of calculation stuff.) Follow this math down the rabbit hole.

If you have a card with a $5000 balance at 18% and make $100 payments each month, what do you think is the final tally to retire your balance and how long will it take to pay off?

Assuming you make no other charges after you begin to whittle away at the debt, it will take you 93 months, almost 8 years, for a grand total of $9300 paid out. That's an unbelievable $4300 in interest.

Now, if you were to invest $100 each month instead, in a mutual fund that grows at a modest 8% annually, in the same approximately 8 years, you would have $13,400.

To finance $5000, it will cost you $8,400.

Where did I get the $8,400? That is $4300 in interest that goes to the credit issuer plus $4,100 that your $100 monthly investment could have earned, if you had put your money in a mutual fund instead of sending it to the credit card company.

This is a cost of debt that your card companies won't share with you. They don't have to. It's not in their best interest to tell you that they are taking your retirement savings from you slowly and steadily every month.

Get out your latest credit card statement. See how much you paid in finance charges over the last month. If you have multiple cards, this could be scary.

This is money that you are not saving in an IRA, spending on groceries, buying shoes for your kids, giving to your favorite charity, or taking your family out for a movie on a Friday night.

You are your own best advocate. The tools of your defense? A pencil, a piece of paper, and a calculator.

Banking On Online Banking

If you are one of the holdouts who prefers to send your bill payments by mail rather than doing it through online banking, then this article is for you. It's time to take advantage of yesterday's opportunities.

The ability to handle all of your personal financial needs online at your bank began back in the 1990's. It hardly seems like it's been that long ago. Technology is handling effortlessly, or nearly effortlessly, the mundane tasks that used to tie you up and prevent you from really being productive.

You can benefit from the advantages of automating your finances right away. After creating an account through your bank or credit union, you are able to generate one-time or recurring debits from your checking or savings account to handle the nuisance stuff that bogs you down during the week.

For example, you can put your mortgage payment, car payment, student loan payment, utilities, cell phone, life, health, and auto insurance on "set it and forget it" mode. You'll need to specify a frequency that you would like the debits to be made. Voila! You are done. No muss, no fuss. It's all taken care of.

Here's another good thing too... You will never have to worry about being hit with a late payment fee either. Your financial institution will begin the payment process early enough to make sure that your funds are sent where they are supposed to go in plenty of time.

Okay, so your creditor doesn't accept online transfers? No problem. Your bank will create a check and send it to them the old fashioned way - through the mail. This is what you would have done. Why stress over who puts the check in the envelope as long as it's done?

Costs for the service are nominal and often free from one institution to another. You need to do this online banking thing. You will thank yourself when you start realizing that you now have some free time that you did not before because you were writing checks, buying and licking stamps, and going to the post office at 5:30 am on your way to work.

Besides, in your kids' eyes, you'll look like a rocket scientist for organizing your finances this way. Who are you to tell them any different?

online banking

Personal Finance and Your Car's Oil Changes: Something to Consider

We agree that regular service and maintenance on your auto is necessary, right? You have to do it or you'll be sitting on the side of the road.

Let's talk about synthetic oils versus regular petroleum based oils as your choice for your car in a way that you may not have considered.

Regular oil changes are about $25-$30 per average car, depending on where you go. These need to be done in the range of 3000-5000 miles. The nature of driving that you do, age of your car, etc., will be a great determiner of your advised maintenance schedule.

Have you considered switching to a synthetic oil? I am not a car person in any way. There will be no discussion here of viscosity, chamber pressure, or detergent oils compared to non-detergent oils. I am not going there. I am looking at this question from the perspective of my use of time, money, our world's environmental climate, and dependence on foreign petroleum.

A typical oil change takes about an hour and costs $30, as I said. You get this maintenance done on your days off work, because your favorite shop is not open on Saturdays. I don't want to spend my time away from my job waiting for car repairs to be completed.

I switched to synthetic oils years ago for several reasons. I can go 7,000 miles between changes and spend less time in waiting rooms on days when I want to be with my kids. Also, even though a synthetic costs more, about 50% more, each visit to visit the mechanic costs less than it did before because I'm going half as often.

Look at the math: In a year of 15,000 miles, that's roughly four oil changes at $30 and four hours wait time. With synthetics, that's roughly two oil changes at $45 and two hours wait time. Benefits of cost and time earned right away.

Last issue, the environment and dependence on foreign petroleum. Synthetics are not petroleum based, so they do not have the same polluting manufacture or disposal concerns. Since they are not regular oils, we can make them here in the US. No need to look anywhere else. We are self-sufficient in this regard.

Less time in the shop, less cost overall, an environmental plus, and our self-sufficiency. This is a no-brainer switch for your personal finances and your car.