By Timothy Ng
You can save a lot of money and eliminate your credit card debt faster if you understand the balance repayments of your credit card and the interest you are paying. In this article you can find out how you can save money every month.
Many people get into credit card debt because they simply do not understand interest rates and the actual dollar value that they represent. They also do not understand about the fees and charges associated with the credit card and get caught up in debt before they know it.
Most cardholders start off with good intentions when they are making purchases on their new card and fully expect to be able to pay off the balance at the end of the month. In many cases, however, something comes up and they are unable to make a full payment.
Interest rates add on to the balance and the cardholder is suddenly faced with credit card debt. People need to understand interest rates so that they can stay on top of their debt, especially in today’s economy.
Time is money with credit card debt
Most credit cards will ask for a 2.5% minimum payment on the previous month’s balance. If, for example, your balance is $1000, when you make your payment $12 of it will cover the debt and $13 will cover the interest.
Paying off the card in this manner will take 11 years to get the $1000 paid off. During these years you will pay $860 of interest charges, which is almost as much as the original debt.
If you take this credit card debt even further and use an example of $10,000, paying it off at the minimum required amount per month would take 27 years to accomplish. You would have paid $11,000 in interest payments by that time, with $133 per month going towards interest and your balance only seeing $155 being paid towards it monthly.
It is always best to pay off your balance in full every month, and if that is not possible, then make a goal to pay at least double the minimum amount required. You will save a lot of money in interest fees by adding on this extra amount.
Anyone who has credit card debt should learn about interest rates and how fast they can really add up. Knowing what you are up against with credit card debt is half the battle of winning the war against debt.
This is a guest post by Timothy Ng who is a personal finance writer. He specializes in information on how to effectively use balance transfer credit cards and helps people eliminate credit card debt. Please check out his site for more information that can help you deal with credit card problems.
Yeah. It feels so nice to buy a lot of nice things using credit card. And paying just the minimum payment which seems so little you can afford to buy anything you want. But in the long run with the interest you will pay double of the product price. Just use one credit card and regularly check your statements.
That’s the whole lure of credit cards, buy now and pay later with a low minimum monthly payment. But it’s a trap, since as easy as it is to get it, it’s even easier to build up. And it builds up quickly until it becomes the problem that it really is.
Credit cards can be used responsibly, but it’s one of those games where the deck is stacked against us, so we can never let our guard down.
I think that credit cards should be the very last vehicle used to pay for something. The interest rates you pay are nothing short of criminal. If you can’t pay for it that month, just don’t buy it. I know that sounds simple and probably unrealistic, but if you try hard, you can avoid credit card debt forever.
As a side note, I was never perfect and credit card debt free. I paid for a big part of graduate school with credit cards because all other options were exhausted. Once i dug myself out of that whole, I never crawled back in. Obviously extenuating circumstances sometimes occur and you have no choice. But if you are looking at a day-to-day item and you can’t pay for it that month, just run away.
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I agree with that line of reasoning completely. The problem with it is twofold: the credit card companies make it to easy to use their product, and we live in a media/marketing culture that pursuades us (demands!) that we have it all now. The combination of the two is hard to overcome unless you’re intentional about it.
The new CARD act added a very useful table to all credit card statements, the table shows in plain english just how much money you are going to spend if you never pay more than the minimum payment and it also has the amount you need to pay per month to pay off the card in 3 years or so. This information is hopefully going to wake up the general public to the cost of their easy credit. If they choose to pay the minimum only after seeing that table then no amount of tlaking will help them.
Vitaeus – I’ve seen that and I agree that it’s very useful. Just seeing the numbers is pretty convincing that you need to stay on top of the payments.
One of the issues with credit cards previously was that those comparisons were missing, hiding the real cost of the loans.
I was glad to see that the CC companies are now required to show consumers how long it will take to pay off their balance. I just hope that people pay attention to it, finally. I think it’s important to keep writing articles like this one in order to drive the point home.
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