Credit cards were designed to allow someone to spend money on various
items, from home goods, to clothing, to vacations and meals. They were also
designed to be paid back for your items at the end of each month. When they
started to let people pay a monthly fee based on your balance on the account, instead of paying in full, the credit card industry became of age.
Now people carry balances that rival second trust deeds in size and for some
balances that are equal to home mortgages. The reason for the growth of balances comes from the fact that most people must wait until the credit card(s) bill(s) arrive each month. Once they see how much they spent they generally opt to pay the minimum on the bill, or the minimum and a bit more.
Before I get into a better plan than I outlined above I want to give notice I am not
your Father and I am not against what you do with your money. I do,however, want to show you a problem with your way of paying,and show you a better way.
When you pay your credit cards with your cash that is in your account you are paying for the purchases with AFTER TAX money. If you earn $100 and are in the
20% bracket you will have $80 after you pay the $20 tax. An $80 charge will actually cost $100 to pay back.
If you were to borrow money on your house, a new first mortgage plus a stipend
to pay bills, then you would pay your credit card bills with Before Tax dollars.
Not only is it before taxes it is actually a tax shelter as the interest on the extra
money you borrower is a write off. If you borrow a $100 you pay interest on it
and that interest lowers your income tax. In the 20% bracket you would only
pay $80 on the bill with the other $20 going to pay your tax.
How much would you save? $40 dollars because you use after tax income instead of before tax income. If your credit card bill was $1000 you would save $400.
How do you make it work? Take enough out of your house that will cover a few months of your payments. Make sure that you take some earnings each month
to replenish your monies for the credit cards. After a short while you will be in
charge with a better way of paying your bills.