When I first moved out, I started receiving advertisements for credit cards.
It was everywhere, in the letterbox, on my email and most of all, on Facebook.
The information the Facebook gathers about its users is frightening. I had posted university graduation photos and information with #movingout tagged and I started seeing promoted posts for credit products infecting my newsfeed.
I’ll admit it was so tempting to click on them.
When you are embarking on a new journey, you need to know your financial limits before you post anything to social media. At the very least, you must be prepared for the onslaught of financial advertising.
The promotion of credit products is generated to your specific interests which can make it very hard to resist them. For example: if you start googling “ways to make money quick” I guarantee there will be a flurry of credit card offers in the sidebar of any website you read. There most certainly won’t be advertisements on budgeting and living frugally. Why?
Credit Card advertisers want you to spend, especially if you have no money to begin with.
What are you talking about Stef? I hear you asking.
Well, let’s think about this logically. Credit cards charge interest on money you owe.
If you spend more money, and only pay the interest on the card, you will end up generating more debt.
This means more interest will be charged on the card.
And more money for the credit card company.
You apply for a credit card with a 13.5% interest rate charged monthly. You start spending with your card. Five pairs of shoes, 9 take away dinners and 14 coffees later you bill at the end of the month is $400.
So, you have to pay $400 + $54 (interest) = $454
You realise that you can’t afford to pay the $400 and so you just pay the minimum payment possible. In this case it’s $25.
So, the next month comes around and you spend $400 this month.
Now you owe $429 (balance from last month) + $400 = $829 + $111.92
You have spent $800 on shoes, food and coffee. And you have also spent $140.02 on interest! That money could’ve gone to your savings!
NB: you have also been charged double interest! The $29 in interest you accrued for the first month is included in next month’s calculation of interest!
This is how banks can make a lot of money from you, and how you can find yourself spiraling into debt!