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Crushing Credit Card Debt
By David Berky
How much do YOU owe on your credit cards?
The average American family is now over $7000 in debt just on their credit cards.
That debt generates an interest charge of over $105 each month if your card charges
the average 18 percent. If you have missed a payment or made a late payment (even by one
day!), you may be paying up to 27% interest or over $157 each month.
Most credit card companies require a modest payment towards the card balance. Modest
meaning from $10 to $20 a month. To pay off a $7000 debt at $20 a month you will not
pay off this debt for 29 years.
And what about those interest charges? Paying off a $7000 credit card debt charging
an interest rate of 18% and paying $20 a month towards the debt, you will pay over
$18,400, more than TWICE the original debt, just in interest.
What if you have more than one card? What if your debt is over $7000? What can you
do? How can you get out of this hole?
There are some techniques that can help you pay off your debt and do not require
expensive loans, invasive credit checks, or expensive financial planners and accountants.
You can also save on interest charges by paying off your debts in a certain order.
The most effective technique is sometimes called the "snowball" method. The snowball
method suggests that when you pay off one debt you apply that payment amount to the
next debt. Thus the amount you pay on a debt grows like a snowball rolling down a hill.
For example, you have three credit cards with debts of $5000, $4000, and $3000 which
are charging you 18%, 27%, and 12%, respectively, and you are paying $150, $125 and
$100 each month. By paying these required monthly amounts you will pay off your
$3000 credit card first.
Now that the $3000 card is paid off you have an extra $100 a month. Put that extra
$100 toward paying off your next credit card debt. Now you are paying $225 a month
on the $4000 card and the $150 on the $5000 card. With this accelerated payment on
the $4000 card you will pay off the card earlier and save some money on interest charges.
Then apply the $225 payment to the $5000 card for a monthly payment total of $375.
Soon this card will be paid off and you will have $375 extra each month to pay off
other debts or better yet, INVEST!
So, which debts should get paid off first?
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