Believe me.
I have been in a situation where I just could not reduce my credit card debt.
My balance was moderate, and I made a bit more then the monthly minimum payment ever month, and never saw my balance decrease.
I finally realized that the system was set up to be a bit deceptive, and that just paying the minimum, or even a little more, was making the credit card company a lot of money, but not getting me off the hook! I finally took in extra freelancing work, just so I could get that credit card bill paid off.
Look at a moderate credit card debt of $3,500.
Lets say you even have a fairly reasonable interest rate of 14 percent.
Now this is a decent interest rate in this day of 26 percent rates! The minimum payment is probably somewhere around $85 a month.
But according to my debt pay off calculator, that payment would only clear the balance in four and a half years.
Furthermore, the interest that would have been paid on the initial $3,500 would be almost $1,200! I hope that the purchase made on that credit card made the person in our example happy because the $3,500 purchase ended up costing $4,700! Now take this same example.
Let us say that $150 can be applied to the balance instead of $85.
In that case, the balance can be paid off in a little more then 2 years, and the interest will be about half of the $85 example.
It is still a large premium to pay for the initial purchase.
Also watch out for additional offers that credit card companies will push on their customers.
Credit card protection, credit insurance, or other services will get charged to that same credit card bill.
These charges will make it just about impossible for you to pay off your debt by paying a minimum.
Meanwhile, the credit card company gets to charge you interest each month that the balance has not been paid off.
Furthermore, high credit card balances can cost you even more.
If your balance is close to your credit limit, it will reduce your credit score.
If you do need to borrow more money for a home, auto, or education, you will not be able to find the most favorable interest rates.
When lenders see that an applicant has run up balances that are close to the maximum, even if the minimum payment is current, they do not feel as if the person has displayed an ability to manage credit wisely.
Emergencies do pop up.
Cars need to be fixed, and dentists have to be paid.
I would never tell people that credit cards are off limits.
But in this economic climate with low savings rates and high credit interest rates, I would try to urge everybody to save their plastic for an emergency, or never to run up more unsecured debt then can be paid off within a month or two unless there is a very good reason.
Think how much better it would be to be able to set aside $150 every month in an emergency fund or a vacation account.
Then when Junior gets needs braces or you have to hit the beach for a few days, you will be able to pay with the money you have already saved.
It is not fun to get back from a trip to face a pile of bills, and it is especially no fun to have a lot of bills after an emergency.
I have been in a situation where I just could not reduce my credit card debt.
My balance was moderate, and I made a bit more then the monthly minimum payment ever month, and never saw my balance decrease.
I finally realized that the system was set up to be a bit deceptive, and that just paying the minimum, or even a little more, was making the credit card company a lot of money, but not getting me off the hook! I finally took in extra freelancing work, just so I could get that credit card bill paid off.
Look at a moderate credit card debt of $3,500.
Lets say you even have a fairly reasonable interest rate of 14 percent.
Now this is a decent interest rate in this day of 26 percent rates! The minimum payment is probably somewhere around $85 a month.
But according to my debt pay off calculator, that payment would only clear the balance in four and a half years.
Furthermore, the interest that would have been paid on the initial $3,500 would be almost $1,200! I hope that the purchase made on that credit card made the person in our example happy because the $3,500 purchase ended up costing $4,700! Now take this same example.
Let us say that $150 can be applied to the balance instead of $85.
In that case, the balance can be paid off in a little more then 2 years, and the interest will be about half of the $85 example.
It is still a large premium to pay for the initial purchase.
Also watch out for additional offers that credit card companies will push on their customers.
Credit card protection, credit insurance, or other services will get charged to that same credit card bill.
These charges will make it just about impossible for you to pay off your debt by paying a minimum.
Meanwhile, the credit card company gets to charge you interest each month that the balance has not been paid off.
Furthermore, high credit card balances can cost you even more.
If your balance is close to your credit limit, it will reduce your credit score.
If you do need to borrow more money for a home, auto, or education, you will not be able to find the most favorable interest rates.
When lenders see that an applicant has run up balances that are close to the maximum, even if the minimum payment is current, they do not feel as if the person has displayed an ability to manage credit wisely.
Emergencies do pop up.
Cars need to be fixed, and dentists have to be paid.
I would never tell people that credit cards are off limits.
But in this economic climate with low savings rates and high credit interest rates, I would try to urge everybody to save their plastic for an emergency, or never to run up more unsecured debt then can be paid off within a month or two unless there is a very good reason.
Think how much better it would be to be able to set aside $150 every month in an emergency fund or a vacation account.
Then when Junior gets needs braces or you have to hit the beach for a few days, you will be able to pay with the money you have already saved.
It is not fun to get back from a trip to face a pile of bills, and it is especially no fun to have a lot of bills after an emergency.
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