I Paid Off All My Credit Cards!

It turns out that there really is a difference, psychologically at least, between actually having NO credit card balances and having a few balances at 0% that you could pay off anytime with cash reserves.

I've carried a balance on at least one credit card for the last year. Can you believe it?!All balances were at 0% - I've never paid a penny in interest on a credit card - and I convinced myself that this sort of "credit card arbitrage" was preferable to paying cash that could otherwise be earning interest in the bank.

My new opinion is that the interest you earn isn't worth the time spent organizing and managing one's credit card accounts. In addition this practice can and eventually will encourage even the most disciplined personal finance blogger to spend more money than she otherwise would.

From February 2008 to January 2009 I carried a $3,000 - $5,000 balance on a business American Express Card. I paid it off just before interest was to begin accruing. The reason I opened and used this card was to renovate my new rental property which desperately (and unexpectedly) needed repairs and maintenance just after I bought it.

From September 2008 to just last week, I carried a $3,000 - $4,000 balance on an HSBC card. I have all my monthly bills put on that card while I "pay" them into my savings account each month instead of paying off the card.
Then - with great regret as it turns out - I applied for yet another card two weeks ago in order to "take advantage" of their 18 month no interest offer on a new TV and DVD player!

In addition to this, lately I've been in the habit of using my credit cards to make regular purchases and "taking advantage of" (aka "needing") the entire grace period before I could pay off the balance! Shocking, I know. And shameful.

The worst part of it all is that I have been thinking I could afford things because I tended to look with pride at my fat savings account balance while mostly ignoring the corresponding credit card balances in the liabilities column of my balance sheet.

Realizing that I would suddenly be wanting to apply for a mortgage loan, I frantically (and finally) pulled a chunk of money out of savings and paid off all my balances. Including the entire balance of my brand new credit card which I now wish I had never gotten.

Now I have a bunch of "empty" credit cards in my wallet and a much more meager looking savings account. My personal finance pride has been deflated somewhat, and I'm determined to get back to living within today's budget - which means not using credit cards AT ALL, not looking at annual figures at the expense of monthly ones, and not counting tax refunds and bonuses and gifts as savings when I'm spending more than I make on a monthly basis.

The Lesson: Don't play money games with yourself! You'll always lose. Save first, spend later, and eschew debt. Period.