My Dirty Little Secret

A Guide on Paying Off Credit Card Debt & Establishing Credit

Last week, my boyfriend and I had to have a serious conversation. I had just finished a run and as I walked in the door he said, “We need to talk.” My immediate thought was, “Oh god, did he find my childhood stuffed animal under the bed?” Idk why… but that’s one of the few secrets I’ve been keeping from him for years. 

“Kelsey, we need to talk about your laundry. There are wet clothes in the washer from 4 days ago and the clean pile in our room is now 5 days old. It’s getting out of control.”

(Thank god he didn’t find the bunny.) “I know I know. I’ve been meaning to get to it. I’m really sorry. I will clean it up today.”

“Can you try to get to it before it consumes the bedroom floor next time? I love you, but the mess makes me super anxious. Also, the laundry in the wash smells horrible - You’re gonna need to wash it again.”

So that leads me to today’s article topic - credit card debt. Icky, stinky, anxiety inducing credit card debt.

WTF is Credit Card Debt?

Credit card debt results when you purchase an item or service through the card system. Essentially, when you spend with a credit card, you are borrowing money/taking out debt from a bank. 

How Does it Work?

When you get approved for a credit card, your bank authorizes a credit limit — the maximum amount you can borrow. When you are first starting out, the credit limit is often lower because you have less credit history. This basically means that banks don’t know if they can fully trust your ability to pay off debt yet. As time goes on and you prove your ability to pay off debt, your credit score and credit limit can increase. 

WTF do Credit Card Debt and Laundry have in common?

  1. They Both Stink - Let’s be real. Laundry stinks. My laundry especially stinks because I not only wait until I’m out of every last article of clothing to do it, but I often forget it in the wash causing a massive mildew infestation. Credit card debt equally stinks. Credit cards notoriously charge some of the highest interest rates (sometimes greater than 20%) and the debt can feel extremely difficult to pay off. 

  2. They Take Time - Laundry for me is a whole ordeal which is part of the reason I hate doing it. I’ve spent years going to laundromats and shared laundry rooms only to get my socks stolen and my underwear embarrassingly strewn on the floor. Credit Card debt is equally as time consuming especially if you’ve accumulated large amounts of it. It can quite literally feel like you are digging yourself out of a massive hole (or laundry pile). However, we all need clean underwear and all need to figure out how to pay off our credit cards. Just because it sucks doesn’t mean you can ignore it.

  3. They are Stressful - While mess doesn’t necessarily bother me, it certainly causes strain on my relationship. For my boyfriend, the final straw was when I started stealing his underwear when I was out of my own. Credit Card stress is also a massive contributor to stress and anxiety. In fact, a recent study found that Americans stress about credit card debt more than any other type of debt.1

  4. They are Necessary - Although I’ve been ragging on laundry, it’s a necessary part of life. While some may do it more than others, we all still need to clean our clothes. I’m not saying you all NEED a credit card, but credit card debt is actually one of the best ways to improve credit which is crucial for home ownership, qualifying for student loans, car ownership and other debt. Just because something can be icky doesn’t mean it doesn’t have a purpose. I’ll elaborate further later in the article.

Things to Be Mindful Of:

  1. Late Fees - If you don’t pay your card minimum, you will be charged late fees and your bank might increase your interest rate. For some reason, when I first got a card, I thought I only had to pay the minimum. While that was an option, it doesn’t mean it's a good one. In the case with my laundry, I always thought I could neglect it but the fact is, it’s anxiety inducing, gross and gets harder to deal with over time if you ignore it.

  2. Interest - If you don’t pay the full balance on your card, interest gets charged. Ironically, when I didn’t do my laundry, my boyfriend got much less interested in me, ugh.

    Example: Let’s say you went to Cabo last month and you’re holding a pretty significant credit balance ($3,500). You’re approaching your 30 day billing cycle (your due date) and trying to figure out if you should pay it off or just pay interest.  

    First: Figure out your APR. Looks like yours is 16.99%

    Second: Calculate your daily interest rate. Do this by dividing your APR by the number of days in the year.
    0.1699/ 365 = a 0.000465 (daily periodic rate)

    Third: Multiply the daily rate by your statement balance (your statement balance is the balance that’s reported to the three credit bureaus each month & is a total of all charges, minus payments, made to your credit card during your previous billing cycle.)
    0.000465 x $3,500 = $1.629

    Fourth: Multiply this number by the number of days (30) in your billing cycle.
    $1.629 x 30 = $48.87 interest charged for this billing cycle

    Fifth: Don’t do that again and avoid paying the extra $48

  3. Credit score - Your credit can suffer because banks report to credit bureaus (data collection agencies). If you pay debt on time, the bureaus reward you with higher credit scores, but if you pay late, they penalize you and decrease your score. In fact, your credit payment history accounts for 35% of your credit score (a number that indicates how risky it would be to lend you money). 

What You Should Do Now?

  1. Check Your Credit Card Due Date - I’m going to guess many of my readers don’t know their credit card due date. That is okay - you’re talking to the girl that lost track of 5 days with her clean laundry in a pile on the floor. But today is the day you figure that out so you don’t miss any more credit card payments. Lots of cards also let you change the due date, so I’d recommend changing it to something memorable like the 15th or 30th of the month.

  2. Put on Auto Pay - If you are like, hmmm that date is great and all but I’m likely going to forget it anyway, put on auto-pay. This is the best way to make sure you will never miss a payment. Do they have auto laundry?

  3. Pay Off Your Minimum - If you have debt and have been carrying balances, make sure you are at the minimum paying your minimum. If you can, pay as much as you can beyond the minimum so you’re not incurring unnecessary interest charges. They are unnecessary because you don’t have to pay interest if you pay your balance prior to the due date. 

  4. Get a Credit Card - I don’t want this article to scare you. Credit cards are actually good and help you establish credit. So, if you are paying for everything on debit, stop now and find a credit card that works for you. Travel a lot? Consider a travel card. Shop a lot? Consider a cash back card. Concerned you might miss some payments? Find a low interest rate card. I’d suggest starting with the Points Guy to compare across cards and find one that suits you!

  5. Check Your Credit Score - There are plenty of free services that allow you to check your score so check it to know where you stand. Check now here. Once you know where you are, you’ll be able to improve. Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

    Don’t leave your dirty laundry in the closet locked away - it’s still in there even if you think ignoring it is the solution.

    P.S. Alex can you give me some credit for putting last night’s laundry away on time?

What’s next?

This week’s topic is brought to you by Megha Torpunuri who wanted to learn more about credit! If there is a topic you want to discuss, please DM me on Instagram @notyourbfsinvestmentadvice or email me at kelsey@tardiapp.com. I also am building a company called Tardi to help individuals on their journey from cautious savers to savvy investors. If you’re interested in joining the beta, sign up here: https://www.tardiapp.com/

See you next week lover!

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