Posts Tagged ‘debt’
September 8th, 2010 | 
Author: How many charge card accounts do you have in your wallet? What are they costing you? The average American has five or six. That includes bank cards like Visa or MasterCard, department-store cards, gasoline cards and general-purpose cards such as American Express. If each credit card account has a $2,000 line of credit, that means we have $10,000 – $12,000 in credit available to us, on average.
Consumer debt in the United States is at an all-time high. Household spending is rising faster than houtilizehold income. That means Americans are borrowing more and more money to finance their spending habits, a lot of it by using charge cards. Even though interest rates are at a 40-year low, charge card interest is still comparatively high. Those low interest introductory offers you hear about are usually only for six months or a year. Then the APR increases to the market rate.
Unfortunately, we have gotten used to whipping that piece of plastic out of our pockets for any little purchase we want to make without much thought to the consequences. Good money managers try to utilize credit cards just to pay for emergencies or large expenses, like a big auto repair bill, for which they do not have enough savings. If we have maxed out our charge card account limits by making lots of little, nonessential purchases, we may not have the credit capacity to take care of those emergencies or big, but necessary, expenses.
On top of that, most of us have two other charge card account problems. First, we only have enough disposable income to make the minimum payments. Second, charge card account APRs do not necessarily change much when market interest rates change.
How much is all this credit costing you? For the sake of simplicity, let’s just look at one card. Let’s say you have a balance of $3,000 on one of your bank charge card accounts and the APR is 19%. You have to make a minimum payment of 2.5% of the balance every month. A pretty typical scenario. If you do not make another charge on your card, that payment is $75 per month. Of course, that minimum payment will drop every month as you pay down your debt, as long as you never make another charge on that card. What if you just pay the minimum month by month as it goes down from $75 to $69 in 10 months and to $62 in 20 months and so on? If you just make that minimum payment month after month, it will take you a shocking 283 months to pay off that one debt–more than 23 years. Making just that minimum payment each month will have cost you $4,729.44 in interest.
Multiply that by four or five more charge cards and most of us would have a credit problem.
If you decide you can set aside $100 every month to pay off that $3,000 debt, you will have your credit card account paid off in 42 months and the interest expense to you will be $1,101.73. That is shaving more than 20 years off your debt repayment and over $3,000 in interest expense.
Look at your charge card balances, APRs, and minimum payments. Pick one, preferably the one with the highest annual percentage rate, and start paying off that debt with as much as you can reasonably afford per month. Then move on to the next one. In the meantime, try to use your charge cards only for necessities and emergencies. You will pat yourself on the back someday for your good money management.
This article is brought to you by www.JemCreditCards.com – More than credit cards, we build financial stability. A great place to compare the best charge card offers including Discover cards, Chase credit cards, and much much more!
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An essential part of winning the overall war of personal finance is to manage and eliminate credit card debt. Invest the time in managing your charge card debt, and you’ll reap significant financial rewards. Not only will you learn to manage that debt, you’ll take steps towards eliminating that debt as well.
Here’s the biggest secret of managing charge card account debt: Never charge more than you can pay off in a reasonable amount of time. It’s easy to swipe the card for products and services without considering how much debt you are racking up. You’re not the first person who was shocked by the sky-high bill on a charge card account bill at the end of the month. If you find yourself struggling with managing your charge card account debt, consider putting the card in a drawer and using it only for large, deliberate purchases until you’ve caught up on your payments.
Another strategy for managing credit card debt is to review your monthly statement and highlight expenses you regret charging. Make the choice to be aware of how much you’re charging each month. Evaluate your charges, and make decisions based on how you feel at the end of the month when you’re paying for all those purchases at once.
Make all your payments on time
Credit card companies are notorious for charging high late fees. Even if you are in a tough spot financially, you can save a great deal just by making those payments on time and saving yourself the late fees.
Realize the charge card companies are banking on you making late payments and carrying a balance. This is how the charge card account companies make cash. Managing your charge card debt wisely includes making sure you pay down as much balance as you can every month. If you carry a high balance and you’re having a difficult time managing your credit card debt, calculate out how much of your hard-earned cash is going toward interest. This knowledge may motivate you to limit your credit card expenses and catch up on those payments.
Shop around for the right credit card
By comparing interest rates, fees and credit limits, you can quickly determine which card offers the best deal for your situation. Once you have a card, don’t stop looking. It’s good to evaluate your credit card situation every six months or so, looking to see if you can get a better card with a lower annual percentage rate and higher credit limits. If you’re successfully managing your credit card debt (making the monthly payments on time and paying down most or all of the balance each month), you’ll find yourself eligible for better and better credit opportunities. Take advantage of these rewards for good charge card account management and save big on interest.
Use zero-percent and low-interest credit card accounts with caution. Keep in mind that these low-interest credit cards usually change their rates after a short period of time, so read the fine print carefully and mark your calendar when the rate changes. Make sure you will not be penalized for transferring the balance to another card if the new APR is going to be higher than the rate on credit card accounts you already hold. If there’s a penalty, don’t sign up for the card.
Playing the low-interest charge card account game requires a whole different level of credit card debt management. While it can be a good solution if you are carrying a high balance and need a break from paying interest for a while, you need to plan out what you will do when the teaser interest rate period is over. If you have a good plan for managing your charge card debt, you will hopefully pay off the balance before the teaser rate period is up, or you’ll be able to transfer your charge card account debt to avoid the higher annual percentage rate.
Be careful not to max out your charge cards, or it will negatively affect your credit score on your credit report. It’s better to have several credit card accounts and spread out the debt evenly between them than to max out one card. This charge card account debt management strategy plays on the way credit bureaus and creditors view debt. If you max out a card, it looks like you need to utilize every bit of credit you can get. If you have some leeway on each credit card, it appears that you are managing your available credit. This causes creditors to view you in a more favorable light.
Raise your credit limits on your charge cards when you can, but don’t increase your spending to any more than half of the limit available. This strategy for managing charge card debt makes you appear most appealing to creditors, which may lead to better credit opportunities in other areas such as mortgage rates, auto loans and car insurance. Every creditor wants to lend to a debtor who is successfully managing their credit card account debt.
This article is brought to you by www.JemCreditCards.com – More than charge cards, we build financial stability. A great place to compare the best charge card offers including Discover cards, Chase credit cards, and much much more!
