Credit Card Float

November 29, 2013 at 12:20 am 1 comment

Welcome to the Black Friday edition of my blog.

With Christmas coming up, what better time to talk about credit card float?

What is credit card float?  Most credit cards give you a grace period, when you are charged no interested if you pay your bill in full.  Many use the credit card to pay for something this month, then pay it off next month, avoiding the interest.  While this sounds like a smart thing to do, it is really a trap set out before you.  Card companies are sly and will wait patiently for you to take the bait.

Let me explain how this can go down.  Let’s say it’s October, and you just got a shiny new credit card.  You buy groceries, gas, fancy coffee, and everything else you want/need on the card.  November arrives, along with your bill, and you pay it in full.  Things worked out so well last month, you repeat the cycle.  December arrives, along with your bill, and you pay it in full.  Hey!  Christmas is coming, so you buy everything you normally do, along with all your Christmas presents on your card.  Perhaps you spent a little more than you planned, but it’s okay, you’ll be able to cover it in January.

And they probably have just got you snared in the trap.  You are most likely now in the situation where you can’t both pay your credit card balance in full and pay for the current months expenses.  So, you keep spending on the card to pay it off next month.  You are in a self-perpetuating cycle that is very difficult to escape.  Once you have gotten into this situation, you are riding the float.  You are just one emergency away from having to run a balance from month to month, which is where the credit card company gets the reward for their patience.

Don’t think that Christmas is the only way this can happen.  I just used this example because it’s coming up, and it is something that people can easily relate to, but if you continue using your cards in this manner (without budgeting your spending) for any significant length of time, you’ll probably fall into this trap too.

So, how do you escape the cycle?

You must realize that this is really debt that you’ve built up, and you must make the conscious decision to break the cycle.

You need a Budget, so you can start making the best financial decisions that you can make.  Seriously, You Need A Budget.  This is the software I used to get my financial life in order.  You don’t have to use it, but the concepts they teach were key to me getting to a better place, financially.

In my case, I stopped paying my credit card in full each month, and considered it a long-term debt, paying only a portion of it each month.  Yes, this means I did have some interest charges, but it was necessary for a short time to break the cycle.  I began budgeting my spending so that all of my bills were handled and I knew how much money I had available each month for debt reduction.  Within just a couple of months, I had the credit card paid off in full, and I’m now about 2/3rds complete with the task of eliminating consumer debt altogether, all in about 7 months.

I probably could not have done this without You Need A Budget (which I affectionately call YNAB).  YNAB is brutally honest about your financial situation.  In fact, you might think it’s too honest when you are first starting out.  But you need that honesty, so you can fix the problems.  The YNAB website has lots of videos showing how to use the software, it has a free 34 day trial, and they even have free classes to help you get started.  During the classes, you’ll have the chance to win a free copy of YNAB.  They sometimes have sales, but the normal price is $60.  But, if you click this link, you’ll save $6.00 more.  Full disclosure:  I also get $6 when you use my link, which adds up to a grand total of about $6 every couple of months, usually.

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