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%. 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?
Generally, you want to pay off the debts that are charging you
the highest interest rates first. In the above example you could
have added the $100 payment to the $5000 credit card rather than
the $4000 credit card. But the $4000 credit card is charging you
27% where the $5000 credit card is charging 18%. By paying off
the card charging the higher interest rate first, you will save
some money on interest charges.
If this sounds too confusing, you can enlist your computer. You
can search the Internet for the keywords "debt reduction
calculator" or you can visit http:/
/www.simplejoe.com/debteraser/index2.htm and review a
product named Simple Joe's Debt Eraser.
Simple Joe's Debt Eraser helps you create a Rapid Debt
Reduction Plan that is customized to your debts and your
situation. Just enter your debts and the amount you can afford
to pay each month. The software will create a plan telling you
how much to pay towards each debt each month until they are all
paid off.
You CAN pay off your debts. The trick is to stop charging
purchases to your credit cards and develop a debt reduction
plan. Your plan should include "snowballing" your payments and
prioritizing the debts by high interest rate.
About the author:
© Simple Joe, Inc. David Berky is
president of Simple Joe, Inc. which sells the Simple Joe's Debt
Eraser PC software. Debt Eraser can help anyone get out of debt
quickly and inexpensively by creating a Rapid Debt
Reduction Plan. This article may be freely distributed as
long as the copyright, author's information and an active link
(where possible) are included.
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