Getting out of credit card debt is a fantastic goal. Step zero, really, on the way toward owning your financial future.
Now, we both know that it's not the credit card that got you into debt. Just like it wasn't the pizza's fault that you burned your mouth the other night because you were so hungry you couldn't wait for it to cool off. The credit card (and the industry it represents) is just a tool in your toolbox.
And yes, there are so many cards with fantastic rewards.
But we're not there yet.
If you're in credit card debt, you do not need to fuss about rewards. You're not earning rewards when you carry a balance. The credit card company is.
Does that make sense?
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Let's take a look at one of your card balances. Any of them, it doesn't matter. They all need to have a zero balance one day (soon, hopefully!) but let's just focus on one for right now.
Let's say, for the sake of argument, that the card we pulled out is charging you 17% interest each month. That's about reasonable, right? At one point, I was paying almost 25% interest on a card with a very high (my max out point was $20,000, and I was always fairly close to maxing out!) limit, so 17% sounds like a good middle ground.
Now, look at your savings account. If you are lucky, you are earning 1% on that account. It's much more likely to be far less than that.
So, let's reframe.
Every time you pay down your balance on your credit card, you are earning 17% interest.
Let that mull over for a bit.
That means 17% interest, for you, instead of the giant banks that don't really need your money. Not like you do.
But here's the thing. You MUST stop using the credit card in order to earn that interest.
You can use your debit card, but we want to see the balance go down not up. And it's really disheartening when you pay a bunch of money and then see your overall balance only drop by $100.
You might think that it doesn't matter, that in reality, it's all math and it's all coming from the same place, and you're right. You're so right.
But math didn't get us into this mess, and it's certainly not going to get us out.
Pay off that credit card, my friend. Then pay off the next one. Repeat until you have no (zip! zero! zilch!) credit card debt at all.
Then we can talk about the best rewards.
-By Kathleen O'Malley
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