A lot of people don’t know or forget that I have a finance degree. And today I’d like to write from that persona.
Credit cards are in the news. Soon a law will go into effect that limits some of the shady practices credit card companies can use to get extra money out of you (all soon to be explicit no-no’s):
- changing the due date to cause a late payment
- Putting your due date on a Sunday, but not accepting your payment on a Sunday
- changing your rate on one card for missing a payment on another unrelated card
This publicity has led to a serious backlash against credit card companies. Many people dismiss them as evil and others will tell you not to live outside your means, to spend only what you can afford and avoid credit at all costs, so to speak. For more level-headed thinking, read on!
As someone who’s never been personally slammed by credit card companies, but who is always suspicious of big business, I can tell you this: I believe in paying lenders a fair interest for borrowing their money. Moreover, the rate should be based on a reasonable assessment of the risk of the borrower. I also think the deliberatly deceptive and exploitive tactics described above are dispicable.
Now, as an employee of a whitewater pro shop, I see the value of buying on credit (what some would erroneously call spending money you don’t have, or living beyond your means). Let’s say you have $800 in the bank but you want a Wavesport Diesel that costs $1000. Well, consider putting it on your card! At 10% APR, you can spend $95.06 each month for 12 months. Many of us will have to budget that with rent/mortgage, car payment, utilities, groceies, and such, but with careful planning, that once-unattainable kayak is now strapped to your roof. This is the kind of economic thinking that small businesses rely on and the reason credit cards are not evil if you use them properly.
Do you have any questions about the math above, or how certain principles and interest rates combine to become payments? Let me know in the comments section! Oh, and here’s a shot of the Diesel. She’s pretty sweet.