It may feel like you’re saving funds by sending the required amount due on your credit card, the reality is, you’re really paying much more. This time of the year more than ever, the temptation to only pay the required amount and convincing yourself you’ll have more money to spend on presents and yuletide greetings is a problem for a lot. No matter the balance of debt you currently have, this article will show you the importance of paying more than the required – something that could save hundreds of dollars over time. How’s that for a stocking stuffer?
I’ve been questioned lots of times if it is lower cost to have a debt consolidation loan or many credit cards, some with zero interest. The first step you need to decide is how quickly you want to pay the debt off. The best piece of advice is that you pay it off as quickly as possible. Let’s have a look at the effects of making the required monthly payment on a credit card.
As more and more credit card companies are being open and allowing even lower minimum payments you may think this is a good thing. And you might be right if you are really broke, but watch out, it is costing you a lot over time, which knowingly is why they do it. Yes, I know it is a shock, you assumed they were just being friendly! Unlike a debt consolidation loan that has fixed monthly payments (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 APR rate of’ percent (Annual Percentage Rate) and the required payment allowed is 3%. In this case the required monthly charge is 90. By making this charge 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!
Now, the next month you receive a letter with your statement showing that you are such a good customer they are going to reduce the required charge to 2%. Great, you think, I’ve only got to pay 60 month and I can use another 30 down the pub. But lets look at what you are really paying. By making the new minimum charge 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 additional 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 kind after all, maybe a debt consolidation loan with it’s higher monthly charges isn’t such a bad thought.
Yeah, I can hear you asking, but what about the credit card with no interest, well, that is different article, but basically most people forget to change at the end of the period and end up with high interest.
Given these facts I would recommend you to pay more than the required payment and pay of the credit card debt as soon as you can. If you’re not able to pay even the minimum, a debt consolidation loan with a reduced interest rate and a shorter period or debt settlement may be choices to look at.
If holiday shopping has your credit cards maxed out, then get debt options from Debt1Options to start to reduce credit card debt today.
