While it may seem like you’re saving funds by paying the required amount due on your credit card, the reality is, you’re really spending much more. This time of the year more than ever, the feeling to only pay the required balance and convincing yourself you’ll have more funds to spend on gifts and yuletide greetings is a problem for a lot. No matter the amount of debt you currently have, this article will show you the importance of paying more than the minimum – something that could save thousands of dollars over time. How’s that for a stocking stuffer?
Over time I have been asked lots of times if it is cheaper to have a debt consolidation loan or many credit cards, some with no APR. The first thing you need to decide is how fast you want to pay the debt off. The best piece of advice is that you pay it off as fast as possible. Let’s have a look at the effects of making the required monthly payment on a credit card.
With more and more credit card companies are being friendly and allowing even lower required payments you may say this is a good thing. And you might be right if you are really broke, but beware, it is costing you a fortune in the long run, which knowingly is why they do it. Yes, I know it is a shock, you thought they were just being friendly! Unlike a debt consolidation loan that has set monthly charges (Assuming rates don’t update), you can vary the monthly charge on a credit card. For example, if you have a credit card balance of 3,000 with an interest rate of’ percent (Annual Percentage Rate) and the required charge allowed is 3%. In this case the required monthly payment is 90. By making this payment and not using the card for anything else, it will take 12 years and 5 months to pay off this card, and you will have paid a total of 2,714.16 in interest!
So, the next month you receive a letter with your statement showing that you are such a good customer they are going to lower the required charge to 2%. Nice, you think, I’ve only got to pay 60 month and I can use another 30 down the pub. But lets see at what you are really paying. By making the new minimum payment only, it will now take you 28 years and 5 months to pay off your card and you will be paying a whopping total of 7,845.73 in interest. This is an extra 16 years and 5,131.57 in extra interest, rather an expensive trip to the pub I would say. So, maybe the credit card company isn’t being so nice after all, maybe a debt consolidation loan with it’s higher monthly charges isn’t such a bad thought.
Yeah, I can hear you wondering, but what about the credit card with zero interest, well, that is different article, but basically some people forget to update at the end of the period and end up with high interest.
So I would recommend you to pay more than the required charge and pay of the credit card debt as soon as you can. If you’re unable to pay even the required, a debt consolidation loan with a lower interest rate and a shorter term or debt settlement may be options to evaluate.
Will holiday spending have your credit tapped out, debt cures from Debt1Options is a great way to reduce credit card debt today.
Tags: bankruptcy, Credit, Credit Card Debt, debt, debt settlement, personal finance, unsecured debt
