My husband's VISA account required an intervention last week. When his statement arrived, we noticed an interest charge of 97 cents had been applied. He has set up automatic payments of the full statement balance on the due date, so there shouldn't be any interest charges.
However, this VISA card, issued by his credit union, doubles as an ATM card to make withdrawals from his checking account. Last month, on a trip to Frankfurt, he withdrew euros from an ATM, and instead of a debit to his checking account, the transaction was processed as a cash advance. He was immediately on the interest train.
The interest train is like a snowball rolling down a hill. It's the magic of compound interest working against you. As long as any part of your loan balance remains unpaid, interest accrues. Paying the statement balance won't stop it because interest continues to accrue between the date the statement is prepared and the date the payment is posted. And that interest carries through to the following month's balance, accumulating more interest. Once you're on the interest train, all your subsequent purchases accrue interest.
Unlike purchases, cash advances begin accruing interest as soon as they are posted; there is no grace period. And once you owe interest, there is no more grace period for anything. The only way to get off the train is to pay the account down to zero. As soon as possible.
Fortunately, it's easy to do online now. Payment can be instantaneous, so interest will stop. Although my husband's statement reflected only 97 cents in interest, that amount had grown to $2.27 by the time we noticed it and paid the account down to zero.
These are small amounts, because we nipped it in the bud. But this scenario illustrates why so many financial gurus counsel against using credit cards. An item can end up costing you twice its purchase price if you finance it, use your credit card heavily, and then make only minimum payments, especially if you get behind and incur penalties as well.
I believe credit cards are a convenient, safe form of payment. But only if managed properly. And that means paying your balance in full, on time, every month. And avoid cash advances.
What
are your thoughts on using credit cards? I'd love to hear your comments.
I am with you 100% Sharon.. the banks who issue the credit cards have an invested interest pardon the pun in getting you to rack up your charges each month on this safe and easy to use flexible friend...but it costs you dearly as you say.. I use mine for online purchases rarely and pay off the balance each month. I will reblog with the link back to you...x
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