Why Interest Matters

by Charlotte Wood
(last updated February 21, 2009)

In today's buy-now-pay-later world, running yourself into debt is almost hard not to do. Even with your basic bank card you can opt for the credit payment which takes a few days to clear your account, giving you some wiggle room when it comes to actually having what you need in your account. However, serious debt is something to always watch out for because without careful spending and monitoring of your financial habits, debt can become a very serious issue. While some may not think that interest on debt makes that much of a difference, it needs to be understood that it does impact your debt immeasurably.

Interest accrues on whatever balance you owe. Regardless of what your balance is, chances are you'll be gaining interest on it until you pay it and if you let it sit too long, then that interest can seriously harm your finances. In many cases, your interest rate on a loan or credit card is determined by your credit score, so if you have a good credit score, then your interest rate will be lower; conversely, if you have not-so-good credit, then your interest rate will be on the higher end. And given the possibility your credit isn't very good, chances are you won't have too easy of a time paying off a high-interest loan. The key in avoiding interest problems is to be aware of your circumstances and make financial and credit decisions accordingly.

If you can avoid a high interest rate, or any kind of loan for that matter, then do. Don't opt for a higher interest credit card with more supposed "perks" if there is a lower interest credit card available. Don't purposely put yourself in a potential financial bind. Use sense when making credit and loan decisions and don't allow yourself to be drawn into gimmicks and ploys by credit card companies.

One of the best ways to avoid interest problems is to pay your balance every month and don't spend more than you can afford to pay later. Interest doesn't stop accruing just because the money is gone from your bank account. Make sure you can pay what you owe and then you won't have so much interest accruing each month.

It's silly to think that interest doesn't matter when it comes to credit and loans; it's the way these companies make money and while it works, it doesn't have to devastate your financial situation. Choose credit and loan plans wisely and always make sure you can pay off what you spend. If you can follow these two simple guidelines, credit and loans shouldn't pose a problem for your bank account.

Author Bio

Charlotte Wood

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