Credit card companies don’t operate out of the goodness of their hearts. Rather, their goal is to make money, and they do it in several ways. These include charging annual fees to credit card holders, charging fees for cash advances, and charging interest on deferred balances.
The latter is a huge source of income for credit card companies. In fact, a new report from The Ascent reveals that in 2020, the credit card industry collected $ 76 billion in interest income alone. This is good for the credit card companies, but not so good for the consumers who have had to pay this interest.
If you regularly have a credit card balance rather than paying off your cards in full each month, you should know that you are increasing the income of credit card companies – and harming your own finances in the process. And this is a mistake to be avoided as much as possible.
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How to Avoid Carrying a Credit Card Balance
Sometimes credit card balances are inevitable. If you are facing a financial emergency and you don’t have enough money to cover it, you may have no choice but to temporarily hold a balance on a credit card.
But some people end up with credit card balances not because unforeseen expenses arise, but because they don’t do a job careful enough to keep track of their spending. And this is a scenario where you should try not to land, especially if money tends to be tight.
So how do you avoid carrying a credit card balance? First of all, establish yourself with a budget to follow. This budget should take into account your various expenses, including those that may not appear every month (such as vacation expenses). Knowing how much you can afford to spend on different expense categories could help you keep your credit card balances in check.
Then be sure to check your credit card balance weekly. It’s easy to swipe a credit card at the store and forget how much your total is a day later. But if you review your spending regularly throughout the month, you may be able to avoid overcharging and ending up with a bill that you can’t pay in full.
Finally, do your best to build up emergency savings, whether that’s by temporarily cutting back on your expenses or finding a second job and using your income to fund your bank account. If you have cash reserves to draw on, you’ll be less likely to have to charge a credit card for expenses in an emergency. And you’ll have money to tap into if there’s a month you need to spend more than you planned.
Don’t throw your money away
While credit card companies love to charge interest, paying it means throwing away money that you might otherwise put to good use. It’s important to do what you can to avoid carrying a credit card balance. This balance could really hurt you financially, especially if you end up wearing it for a long time.