It can take your brain time to catch up with your finances!
Sometimes small things happen that make us think, and my credit card was recently that small thing. I tend to use it for one-off, larger purchases and, other than a time which I’ll elaborate on in a moment, I pay the balance off in full every month. I have a direct debit set up to pay the minimum amount – I must have missed the payment and been charged a late payment fee at some point in the past, so sorted that potential problem out a long time ago – but have always manually paid the balance. I often cut it a bit fine, paying a day or so before the deadline, but generally I haven’t found it a problem paying in this way.
I’ll choose frothy coffee over credit card interest any day!
This month, however, I missed the deadline by a day. The thought had crossed my mind a couple of times that I should pay the bill, but I didn’t actually get around to it until the day after. I had over £1,000 on the card (I suspect I was avoiding paying the bill for this reason), so kicked myself as I knew the interest payment would be high. As I pay the card off each month, I haven’t bothered sorting myself a low-interest card, and mine charges a whopping 21.7%. After kicking myself a bit more, I decided to ring the card company to ask if they would waive the charge as a favour and, after checking my payment history and seeing that I did generally pay the balance in full each month….they agreed!
So, a little tip, if you find yourself in the same situation, it’s worth giving it a shot. You may find a human being at the end of the line who can help you out.
The interest I would have had to have paid for just one day’s delay in paying was about £27! I’m trying to limit my lattes to save some cash, and that interest payment would have bought me 10 days of coffee treats! I know what I would rather spend my money on! Imagine if I’d forgotten to pay for a few more days, and they hadn’t been so generous in waiving the charge….
But, this is not a post about card interest rates….
I could write a post on exorbitant credit card interest rates here, but I’m fully aware of the high costs of credit card debt, so that’s not what struck me the most. What struck me most was when I thought to ask myself why on earth I’m not automatically paying off the full balance each month.
I realised that it’s because I’m worried I won’t have enough funds in my account to pay the bill. Which begs the question: what on earth am I buying on my card that I can’t afford?
I’ve spent the past year getting my finances in order, which means as a minimum spending less than I earn. My conscious mind has no qualms with the common sense of this, yet somewhere lurking in my subconscious is the thought that I might need to buy something on credit that I can’t pay for that month.
We don’t always move as quickly as our finances
We failed to react quickly enough a few years ago when our income fell significantly, and debt started to build up on our credit cards. We’d cut back, but not enough, and it’s easy for debt to get out of control when interest charges start adding up. We’ve since paid the debt off in full, after transferring it to an interest-free card.
Our finances can change, and dramatically so in short spaces of time, but it can take time for us to adjust to our new circumstances and start spending (or not spending) accordingly.
I think this works both ways, if the situation gets worse, or better. For example, I’ve spent over a year now trying to improve my finances. I’m totally of the mindset that if I want to buy something, I either use existing savings, or save up for it. I don’t want to resort to credit cards for any spending, yet it seems I was still allowing myself that option, ‘just in case’ something unforeseen should happen. In the same way that I was slow to adjust to the drop in our income a few years ago, a simple mistake in paying my credit card bill late has flagged that maybe I’ve still got work to do!
Automate your finances
I’ll be changing my card so that regardless of the amount I spend, it’s paid off in full automatically each month. I now have money saved to cover emergencies, and also some other savings, so there’s no reason I can think of that would mean I would need to resort to credit card debt.
My late payment is one tiny thing, but it’s made me think about why I use my credit card, and has made me more determined not to put anything on it that I know I can’t afford.
Another small step forward perhaps!