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Mistakes of debt
The Plastic way to debt
The common mistakes in financial planning are all, in one way or another, related to debt. Debt and lifestyle go hand in hand in American society. When you use debt to fund a consumptive lifestyle, not only do you have the consumptive lifestyle working against you financially, but you also have the additional burden of debt working against you financially. Both should be avoided like the plague!
Avoiding the use of debt is incredibly difficult because the promotion of credit card use has made credit so easy to obtain and the temptation to use credit or debt so overwhelmingly difficult to resist. Credit card companies are spending hundreds of billions of dollars to entice each of us to spend and to use credit with cards that make spending "easier", and those amounts are a pittance when compared to additional advertising dollars of retailers.
When Sears introduced "The Discover Card", they used Atlanta as a test market. The newspaper articles at the time of its introduction reported that Sears' officials expected credit card usage to go up by thirty-five billion dollars as a result of the introduction of this new card. Their studies showed that the card use would be incremental borrowing rather than replacement borrowing. In other words, people would be adding to their already existing credit card debt because the new card was nothing more than an additional line of credit for them.
Conclusion
Lending institutions do not want people to pay their credit card debts each month because of the 18% to 24% interest that is earned on that credit card debt.
Today's Bottom Line
According to a banker in the banking industry, a person who uses his or her credit card for convenience sake and pays the debt off each month is known as a "deadbeat".
Calculate your credit card loan interest as well as your compounding interest with our calculators.
This article is adapted from the Master your Money textbook.
