Why People In Debt Pay More For A Cheeseburger

Quite often I use the phrase "I don't want to pay $12 for a cheeseburger, but I"m sure not about to pay $25 for a cheeseburger". This is when I am talking with someone who is "paying the minimum" due on their credit cards instead of paying their balance in full every month. Every time you don't pay off the full balance, you end up paying interest on whatever you purchased. This is a huge problem, because now you are financing your $12 cheeseburger.

Currently (December 2022) the average consumer credit card rate is slighty above 20%. So let's just use 20% as our interest rate.

Paying the minimum payment on a $1,200 balance will cost you double

Using the calculator on Bankrate.com, let's assume you have a balance of $1,200 on your credit card (Yeah, that's 100 cheeseburgers!). You have the average APR on your card of 20%, and your minimum payment is 1% of your balance.

You will end up paying $2,590.10 and it will take you 11 years and 3 months if you just pay the minimum payments. 

The Argument I Usually Hear

After I explain this to people they typically are in shock, but even worse they tell me that they aren't lucky enough to be able to pay their credit card balance in full every month. They claim that they don't make enough to be able to pay off all of their debts and have to rely on a credit card just to make ends meet. 

THERE ARE SOME SITUATIONS where this is true. But, they are extremely rare and not something maintainable long-term.  Typically the people who claim they can't afford their monthly bills have a TON of luxuries that they consider necessities.  For example, eating out, starbucks visits, a nice car, subscriptions (Netflix, Hulu, Amazon Prime), and buy things they don't absolutely need.  I'm not saying you shouldn't have some nice things and enjoy yourself, but if you sacrifice for a small period of time then you can have a debt-free life where you can enjoy these things and not have to pay interest.

Ways to Increase Your Income

If you are in debt the best thing you can do is increase your income.

  • Discuss a raise at work
  • Find a side hustle (Shipt, Door Dash, Uber Eats, GrubHub)
  • Get a part-time job

While working a ton of hours forever is not sustainable, it is a great way to get out of debt quickly and help you put yourself and your family in a better financial position long-term.

Ways NOT to Increase Your Income

Whatever you do, please consider other options than these risky ones when trying to get out of debt.

  • Day Trading on the stock market
  • Gambling
  • Investing in real estate

While stock trading and investing can be great goals long term, trying to learn the skills necessary is not a great time when you need cash now. It's best to only invest cash that you can afford to lose. Gambling if it is done as a source of entertainment with a fixed budget can be ok, but it should never be done as a source of income.

The Best Way To Get Out Of Debt

BUDGET. Noooooo, not that! Yep, it's the most freeing thing that you will ever do. Check out my article on the weekly budget. This is the simplist way to budget and will help you get control of your finances.  Once you have a weekly budget setup, then you start doing "no spend" weeks. This is where you survive on whatever basics you have and use that extra money to either pad your savings account, increase the amount of debt payoff, or even do a little something nice for yourself.

Watch Out For 0% Credit Cards

Be EXTREMELY careful with 0% credit cards. If you do get a 0% credit card, make sure that you are making payments on it so that you aren't left with a massive balance by the end of the 0% intro offer. I personally fell for this when I was a young, and ended up having to transfer this balance to a personal loan. I had every intention of paying off that debt, but life happened and I got behind. 18 months of no interest seemed like plenty of time, but 18 months went by fast. 

The best thing you can do with these is if you need a certain amount of money, and you know for 100% fact based on your budget that you can pay it off in a set amount of months, get a card that offers double that. For example, you have $2,500 you will put on the card, and you know that you will be able to pay that off guaranteed in 6 months, then make sure the card has 12 months with no interest. That will help any unforseen circumstances and prevent you from getting a massive interest bill once the promotional period expires.

You CAN do this!

Always remember, you are capable, you are worth it, and you are good enough. Money is something we need for trade, but it doesn't define who you are as a person. You are amazing, and you can learn the skill of managing your money. No matter what your financial situation is, don't ever put yourself down for where you are. Lift yourself up and tell yourself that you are worth a better life and never pay $25 for a cheeseburge again.