Leave Home Without It...How to Avoid Credit Card DebtWritten by Johann Erickson
It would seem that a day doesn’t go by without receiving a credit card offer in mail. Oftentimes, offers seem too good to pass up. But before you’re tempted to apply for that “platinum card”, there are a few things you should know.
Too many people see credit cards as a means of buying things they wouldn’t normally be able to afford. It’s very easy to live beyond your means when you only have to make a “low minimum payment” once a month. But what most people fail to realize is that interest only continues to pile up on your outstanding debt. When you make only minimum payments on your credit cards you're often not even covering interest from previous month, let alone making a dent in paying off principal. At that rate you can be paying off your credit card debt for decades. It’s like trying to put out a fire with an eyedropper full of water. Also, be wary of those seemingly thoughtful letters from credit card companies praising you for being such a valued customer and as a "reward", they offer to let you skip a payment. Don't be fooled. Interest is still accumulating, making more money for credit card company.
If you feel yourself drowning in a sea of debt, there are some things you can do to help yourself. For starters, look into lowering your credit card interest rates. Sometimes all it takes is a phone call to your current credit card provider to negotiate a lower interest rate, especially if you threaten to take your business elsewhere. If they’re not willing to work with you, then it’s well worth time to do a little research to find out which credit cards are offering a better rate. Generally speaking, anything under 12% is considered good. If your credit history is fairly stable it’s an easy process to transfer your credit card balance onto another card. Just remember, point of making a balance transfer is to pay down your debt. It should not give you license to start charging above your means once again. If you’re not careful, this kind of maneuvering can become a vicious cycle.
| | Maxing Out on the Minimum: Don’t Get Trapped Making Minimum Credit Card PaymentsWritten by Elizabeth Walling
It’s an easy trap to fall into: you get that pre-approved credit card offer in mail, most likely with an appealing introductory interest rate for first six months. You feel like you deserve a little extra spending money, and minimum payment is only 2% of balance; even you can afford that! You promise yourself that you'll start making more than minimum payment after introductory rate expires, and by then you might even get that raise you’ve been expecting from work. However, we all know these plans never turn out quite like you expected. A family member falls ill, and you have to take an unusual amount of time off of work, meaning you won’t be getting that raise any time soon. Then when car breaks down, you have to use any extra spending money you have to repair it just so you can get to and from your job. You can still afford minimum payment on your credit card, though, and you decide to just stick with paying that. After all, what difference could it make?
The truth of matter is that it can make an enormous difference. The minimum payment is perfect amount to ensure you will be paying on your balance for years and years to come. In end, you could be paying several times more than your original balance in interest charges alone. It may not seem plausible, but it’s hard to ignore when you have numbers right in front of you. Here are two examples of what happens when you make only minimum payment on your credit card:
Let’s say you have an meager $1,000 balance on your credit card, which has average interest rate of 18%. Your minimum payment is $20 per month. If you pay minimum payment, you will be paying off this balance for eight years, and you will pay more than $850 in interest charges.
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