If you have a habit of carrying credit card debt - watch this

You know it's not what you want to do, but in the moment you did what you had to do and you decided to put a little debt on your credit card. Let's expose exactly what happens when this continues to be a habit by putting more and more debt on your credit card. Hey what's up guys it's Justine with Debt Free Millennials, the channel to help you crush your debt and live payment free. Let's talk about carrying credit card balances. If this is you, continue watching this because I'm going to expose the exact math on how this all happens. So the habit of carrying a credit card balance really happens when you start viewing credit cards as a source of income. And when you look at that credit line and you can see exactly how much, perhaps a couple hundred or maybe several thousand dollars in credit max that is allowed on your credit card, this is where it can get very precarious for you because you start viewing that as income instead of actually looking at what's in your checking account. When you start viewing credit cards as income, it becomes really dangerous because everything that is not paid off on that credit card means it becomes more and more expensive. Imagine buying something that was $20 and then waiting a couple of weeks and seeing that it was $30 and then you decided to buy it again. That's exactly what happens when you continue to carry a credit card balance. You are continuing to pay for that item over and over again except this time you continue to pay extra and it becomes much more expensive. Carrying a credit card balance consistently also creates a detachment from money. You are no longer actually feeling that transaction. You're not feeling how this is affecting your bank account because now you are only looking at the minimum payments instead of the actual payment, how much it is. And we all know credit card companies charge borrowers interest when that credit card is not paid back in full every single month. So just exactly how is this interest calculated? This is where things get really eye-opening on the credit card debt balances. So there are a couple of different things that you'll need to know in order to figure this out for you. So I'd love for you to pull up your credit card statement and we'll go over this math really quickly together. The three pieces of information that you'll need to know is your APR. This is your annual percentage rate, your total credit card outstanding balance, the total amount and what you owe, and also what your billing cycle is. How many days are in your billing cycle? Typically this is 30 days. Sometimes it's a little bit more or less. Okay, let's get into the actual equation. First, you'll want to take your APR and present that as a decimal and divide that by 365. 365 days are days in the year and that will get you your daily rate. Once you get that daily rate, you'll multiply that by your total credit card balance in order to get the daily interest charge. Did you know when you carry a credit card balance that you are actually charged interest daily? This is called compound interest. We'll get to that in a minute. Next, you'll take your daily interest charge and multiply that by the number of days in your billing cycle. I just use 30 days for the examples I'm about to show you, but if it's 28 days for you, go ahead and plug in 28 days. Once you multiply that, that will equal the total interest charged for the month. Now here's where the compound interest comes into play. If you do not pay your credit card balance after that interest has been charged to you, that interest gets added to your total outstanding balance and then more interest is applied to that new total. This is interest upon interest, which is compounding over time. The longer that you keep a credit card balance, the more interest that will be applied to that credit card balance and it really snowballs and gets out of control. This is where people get into trouble and cause major, major problems, anxiety, stress, and overwhelm when they don't make any dents, not even the minimum payment. This is where people can get sent to collections or have to file bankruptcy. Let's go ahead and follow two examples. Let's say that you are carrying a credit card balance of $2,379.79 and your interest rate is 23.74% and we'll keep this to a 30 day billing cycle. So I'm just going to pull open my calculator and we'll do this together. All right, so let's plug in the interest rate expressed as a decimal. So 0.2374 divided by 365 days. So this is 0.00065041. So this is our daily rate. Now let's take the daily rate and multiply it by our total outstanding balance, which is the and now we're getting a daily interest charge of $1.55. So $1.55 every day for 30 days. So let's see how much it is in a month. In one month, you'll accrue $46.44 in interest. If you do not pay anything on that credit card, this interest gets applied to the total outstanding balance and thus you owe more for the things that you bought on your credit card. Let's take a look at an example that has a higher balance. Let's say that you owe $10,872.89 at an 18% interest rate. So let's go ahead and calculate what the total interest charge would be for the month. So we'll take 18% divided by 365 to get our daily rate, and we'll multiply that by the total outstanding balance, 872.89 and multiply it by 30 days in the billing cycle. And now the total monthly interest charged to your debt is $160.86. That is money that you owe, and that's not even touching the principal on your credit card balance. So we're adding $160 and next month, if you don't pay that off, it'll actually be even more interest charged because this $160 gets added to the total of $10,872.89. And now your credit card debt ballooned to over $11,000. So you can see the cycle, it gets very overwhelming very quickly because it continues to just skyrocket into these astronomical amounts. So what can you do about this? I have three pieces of advice for you. The first one is you need to separate out your need spending and your want spending. Need spending is defined as any mandatory spending that goes towards your basic living requirements. This includes rent or a mortgage payment, your utilities, groceries, and transportation. If we have those things covered and those are our pillars of just operating our life, we know that that is need spending. Want spending is defined as any type of spending that makes life more comfortable, easy, and fun. Anything that you might purchase in Target, that sounds fun, toys for your kids, new clothes, home decor, that is all want spending. We want to do those things because it makes our life more comfortable, easy, and fun. If we know the separation between those two, then we can more easily identify what's going on with our spending when it comes to our credit card debt. Number two, write down your income and expenses through the form of a written budget. Simply write down every single transaction as a quick exercise. So what you can do is either take the notes app on your phone or take a journal around with you and at the end of every day, actually I had counseled a couple through my budget boot camp program where they had a whiteboard on their refrigerator and every single day when they got home from their workday, they mentally kept track of what happened throughout their day. Did they purchase lunches or go through drive-thru? Did they stop off at Walmart on the way home? And they wrote down every single time they spent money on this whiteboard. Now the cool thing about the whiteboard activity is that they kept it in their kitchen where the two of them could see the transactions and how much they were spending throughout the week. This kept their transactions top of mind instead of tucked away in a wallet through the form of a credit card that you never look at. So if you have a problem area specifically that you know, I definitely spend big money at Starbucks, I think then it would be interesting to just maybe focus on Starbucks as a transaction category and write down in the week, Monday through Friday, every single time I'm going to Starbucks, write the date, write what you ordered, and write the amount. Add it all up at the end of the week and tally up how much money you spent. Then take an emotional check with yourself. Does this purchase and does this amount of money put me in a positive state, a neutral state, or a negative state when it comes to this type of spending? If it's negative, then we definitely need to do something about it. And number three, my last piece of advice for you here is to not replace contentment with spending. A lot of people, myself included, can confuse contentment with spending. Contentment comes from the things that make you, you. They come from your values and from doing activities that bring you joy that don't cost money. Think about those values. What are the things that you truly love to do? For me, I really connect with being outside. So if I know one of my values is connecting with nature and being outside, then I start fitting in contentment activities that align with that, such as going to the beach and going surfing, hiking, going to the park with my daughter. Maybe it's just taking a walk outside with my husband and just kind of having chit chats and talks together. That's one of my values. Maybe you value arts and crafts and you like sketching in a journal. Maybe you found a really cool YouTuber, Mira Beiler, heads up, she's fabulous, and you start teaching yourself how to draw and illustrate. This is something that's free and fun for you to do that fills you with joy instead of bogging yourself down with unnecessary spending. Now remember, overspending means you are willing to sacrifice your budget and your values for temporary pleasure. Overspending is shown when you carry a credit card balance. And if you're looking for more support on that, I have two resources for you. The first is my How to Control Your Spending Workbook. This workbook has been a labor of love. It's over 50 pages filled with activities to help you bring that confidence back into your life when it comes to your personal finances. I will link to that workbook below if you're interested. It is on sale, so go ahead and get that at a discount and make sure you have a plan put in place for your money. If you are looking for additional support and you're like, no, I just need to talk this out, then take a look at my budget boot camp program. This is my one-on-one budget coaching program where you and I work together, not only on this credit card balance, but also on other financial goals that you have for your life. And we make a plan for your money so that you feel more confident, less stressed, and overwhelmed so we can get back to a feeling of peace and zen with our finances. That is also linked below if you want to check that out. I hope this was eye-opening for you as it was for me. Not seeing these equations actually written out on our credit card statements, it means credit cards don't want you to know how much interest that they are charging. But in all reality, this is the exact equation that they are using to charge you interest and keep you on those payments. If you like this one, give this one a big thumbs up. It definitely helps out my channel so we can reach more millennials and more people who are impacted by credit card debt. And I'll catch you in the next one.