Tuesday, April 15, 2008

An introduction to credit card woes

Back in the good old days when interest rates were going down instead of up, we made the decision to switch to a home equity loan.  You know the ones where your salary goes straight into the loan account and sits there earning interest?  You use your credit card for all your bills, then pay off the credit card balance from the loan account each month.  Good in theory.  However, we found (along with many, many other people) that it's a little harder to put into practice.

Somehow each month we ended up spending more that we were earning.  Not much more.  But enough that we were no longer reducing our home loan.  Over a period of about three years, it became obvious that home equity was not the loan for us.  We didn't have the systems or self control to make it work the way it should.

So we returned to the standard, no-frills loan.  Fortunately the home loan balance was reasonable (by today's standards) so we didn't get into trouble with our monthly repayment.  But we didn't change our credit card habits.  This led to the circular situation where, each payday the credit cards would be paid (sometimes in total, sometimes in part), but we would have no cash left, so everything went back on the credit card for the next month.

Fortunately (I keep using that word!), our credit card debt never got totally out of hand.  We have tried a few times to get out of our "dog chasing its tail" situation, but have never got very far.

Our latest attempt has been different.  Although we're only a month in, I'm seeing an attitude change in both The Thinker and myself.  I think this time, we're going to do it :-)

Next time I'll go through the process we're following now and why I think it is working for us.

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