What Happens When You Use Your Credit Card?

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A Love Hate Relationship

I love credit cards. If it were not for them, we would have had great difficulty adopting our kids. Need to pay a government fee? Use a credit card. Airline tickets? Credit card. Yep, credit cards played an important role in our adoption process.

I also hate credit cards, mostly because I have made some really bad decisions with them.  For me and millions like me, credit cards are a tax on impatience!

Like pretty much everything else created by man, credit cards can be a useful tool or they can cause immeasurable harm. They can help make wonderful things happen, like an adoption, or they can become a millstone tied around our neck dragging us into the debt abyss.

If you are trying to save money, or live on a budget, you need to be very careful how you use your credit cards.  You may not want to use them at all after you see the illustration below.

A Tale of Two Consumers

What happens when we use our credit cards instead of saving up for purchases?  Lets run a quick experiment, using this calculator. Go ahead, click on the link and play along.

I developed a fictitious but very realistic situation, in order to show you just how much money you are throwing away when you use credit cards instead of saving up for some of the things you want. The situation pits You, playing the part of a spend now-pay later kind of person, against a patient saver named Sarah.

Let’s see how this all plays out over a 10 year period.

Sarah The Saver

Sarah is patient. She set aside $200 per month and made purchases only when she could afford to pay cash for them. She continued to spend $2400 per year, every year.

Year 1

  • Sarah spent $2,400 during year one.
  • At the end of 1 year her carry over balance (what she still owed for the goods that she purchased) was $0

After 5 years

  • After five years Sarah had made $12,000 in purchases.
  • Her carry over balance was $0

At The End Of 10 Years

  • At the end of 10 years, Sarah had made $24,000 in purchases, all in cash.
  • Her carry over balance was still $0. She owed no money whatsoever.
  • Over the 10 year period, Sarah spent $24,000 for $24,000 worth of products.


Let’s pretend that you spent $2400 per year on the things you wanted, but you were a little bit more impatient.  You used your credit card to make purchases the moment that you wanted something. In this case you made $2,400 purchase on the first day of the year. You paid $200 per month to the credit card company at a rate of 15% for the privilege of buying things immediately rather than saving up for them.

Year 1

  • During year one, You spent $2,400 on your credit card.
  • You paid $200 toward the balance of your credit card each month.
  • Even though You paid $200 per month, at the end of the year, you still owed the credit card company $216.
  • The $216 that you still owed was the interest for the $2,400 you borrowed.  You might as well think of it as a “tax for your impatience”.

After 5 Years

  • After 5 years your carry over balance was $1,653.  This is money that you owed to the credit card company because the $200 you paid per month was not enough to keep up with the interest that you were constantly accruing.
  •  Add the $2,400 that you spent at the beginning of the year, and you were looking at a balance of $4053.

At The End Of 10 Years

  • If nothing changed and you made $2,400 in purchases every year on your credit card, and made $200 payments each month, at the end of 10 years, you would still owe $9,076 to your credit card company.
  • $9076!

Shocking Isn’t it!

Most people don’t look at the long picture before they whip out their credit card to pay for something that they don’t have the cash to pay for.  I know I didn’t.  The illustration that I used is not unrealistic at all. The average family carries over $15,000 in credit card debt. The purpose of this article was to show you the huge advantage saving has over being impatient and using a credit card to get immediate satisfaction.  I sure wish someone had shown me an illustration like this 30 years ago.

What is that special something that you’re just dying to purchase? Some new furniture for your house? Some really special Christmas presents for your kids (that will surely make them love you a little bit more)? Some home improvement project that just can’t wait?  Sometimes your purchases really can’t wait and their are real emergencies, but next time the urge to spend comes up, try squashing it back down!  Make a list of the reasons you have to make the purchase right now and another list of why you should wait.  Then make a list of ways you could save, or find the extra cash you need.  Could you have a garage sale to pay for the new couch?  Maybe sell something on one of those Facebook groups before buying your kiddo the new bike. Or do a family spending “fast” to cover the cost of that cool weekend getaway.

Let’s share some ideas!  How have you saved instead of spent?  What are you saving for now and what creative ways are you finding to raise the funds?  Give us some of your best tips and I’ll share some of them in my next newsletter, too!  Be sure to sign up here!



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