I have had too many clients fall into the trap of being unable to pay off their credit cards and having to negotiate a settlement.
Did you know banks are exempt from usury laws that limit the interest charged by other lenders? Credit cards are a form of legalized loan sharking.
Credit cards are a very lucrative business for banks, because they can charge huge rates of compound interest that can make account balances soar, so customers can’t escape the trap.
When you pay your statement balance monthly, no interest charges generally applies for those months. So credit cards can be used safely provided you know you will have the funds to pay them. In other words, think of your charges “as if” you are using cash, so there has to be cash available to pay them. If you don’t (or won’t) have the cash, don’t use the credit card!
Avoid spending money you don’t have. Instead of using Door Dash to order lunch, make a grilled cheese sandwich. Instead of shopping for clothes at the local boutique, shop at Ross, Marshalls, or a thrift store. Instead of a new Ferrari or BMW, buy a used Toyota or Subaru. (Maintenance expenses are much lower for Toyotas and Subarus than for Ferraris and BMWs.)
Many vendors are offering discounts for paying with cash.
If you must borrow, discuss other options with your banker or credit counselor. Do you qualify for a lower interest equity line or mortgage refinance? Does your bank offer a lower interest personal loan?
I’m looking at my Citibank credit card statement for August, 2026. As an example, say my balance is $3,000. The minimum payment is $41. The interest rate for purchases is 18.49%, which we’ll round to 18.5%, or 1.54% per month. Note that there is a warning on the statement the rate can be increased to 29.99% if you miss making the minimum payment. (Ouch!)
Here’s a “rough and dirty” example, including adding $2,000 per month for purchases that also make the account grow. Note the minimum payment will actually increase as the balance grows.
Month 1: $3,000 (balance) – $41 (minimum payment) + $45.57 (interest) + $2,000 (purchases) = $5,004.57
Month 2: $5,004.57 – $41 + $76.44 + $2,000 = $7,040.01
Month 3: $7,040.01 – $41 + $107.78 + $2,000 = $9,106.79
Month 4: $9,106.79 – $41 + $135.99 + $2,000 = $11,201.78
Month 5: $11,201.78 – $41 + $171.88 + $2,000 = $13,332.66
The balance at the end of Month 5 is more than four times the $3,000 original balance! Notice the minimum payment is less than the monthly interest charge after Month 1. Can you see that continuing this pattern of being charged interest and adding monthly expenses without making substantial payments can result in digging a hole that you can’t escape from?
Many people don’t have the discipline to pay their credit card balances each month. They are better off just cutting up their credit cards and using a debit card, instead.
Lessons to follow: If possible, only use credit cards when you can pay the balance every month. If you must borrow, seek lower interest alternatives.