Ive always thought that there should be a high school course on “credit”. Credit ratings, credit history and the importance of having credit in order to afford pretty much anything of any significance should be something we all have some knowledge of as we enter our adulthoods.
After graduating from high school, most students eager to get out into the world and spend! are still unaware of how much having bad credit can have adverse effects on their lives. Paying off credit cards, and school loans, opening a business, buying a car and especially a home are all major commitments that involve the necessity of having good credit.
I have experienced all of the above and know first hand how important it is to have good credit. While it is inescapable, ones life should certainly maintain a high level of concern about the evil “I”.
Im talking about that dreaded inevitable villain: interest!
I have a bunch of problems with the concept of interest.
THE UNKNOWN PAYOFF
The first problem I have with interest accruing on any outstanding balance that I may have is that its a mystery. I never know for sure exactly what my TOTAL payment is going to be.
Im no expert mathematician but I know that regardless of the interest rate, my final balance will be determined by how much I pay towards it and how often a payment is made. This, in and of itself, is an extra emotional strain especially when you may not have the money to reduce the amount of interest you are paying over time.
The second problem I have with interest is the way my payments are distributed between my accrued interest and my principle balance. It feels like I am literally throwing my money away knowing that “interest” takes priority over the balance that I actually “borrowed” to begin with.
So if I am paying off $1000 on my credit card and make a $100 payment, I know that my new balance is not $900. The interest that has accrued on the balance has been paid first. The total balance may only have been reduced by $50 for example, depending on the type of balance Im paying off.
I know that, in many cases, if I were to only make minimum monthly payments, it would literally take decades to pay off my balance in full!
MANDATORY PAYMENT SCHEDULES
The third problem I have with paying off pretty much any interest accruing balance is the mandatory payment schedule. Once a month, I am absolutely required to make a payment or else!!
It doesnt matter what my current financial situation is or if I have encountered some sort of unexpected occurrence that may have forced me to dip into my savings, whoever I am making payments towards doesnt care!
I HAVE to make at least a minimum payment. It would make life a lot easier if I were able to make payments based on a percentage of my income at any given time. That way, I would be confident that I could always afford my payments.
POTENTIAL LATE FEES
This is the worst one yet. As if having to pay interest wasnt bad enough on its own, if heaven forbid, my payment arrives even one day late, an additional fee will be added to my balance. Talk about stress!
Sometimes I wonder how anyone is able to pay off a debt. If we could afford to pay all of these fees, I doubt we would have borrowed money or utilized our credit to begin with.
Now, of course, paying interest cannot be avoided. Most of us cant afford to buy a car, condo or a house in one payment! But avoiding interest payments as much as humanly possible is sure to make anyones life easier and bank account fuller. This is especially true if you are looking to improve upon your life.
I believe that whether for personal or professional ambitions, success can most easily be attained when one can work with “sure things” as opposed to variables.
Having a friend pick you up to drive to an important event exactly at 7pm – instead of “shortly” – is certainly more gratifying.
Having an exact cost versus an accruing interest rate? Ditto.