How many people reading this have at least one credit card?
How many of you have a debt of more than $1000 on it?
Did you know that a small debt such as that could take 14 years to pay off if you choose to only pay the minimum amount required which is typically 2% of the balance? In that time, you will also pay another $1,122.78 in interest on top of that.
This is why it is crucial to understand just what you are doing when using credit instead of cash for those everyday purchases such as dining out, or buying that outfit or new gadget you just have to have.
Now although the median amount of debt recorded is only $2,200 in the United States, the total debt of people in America today is over 709 billion dollars. This means that the credit card companies are making big bucks off of our everyday purchases. Many people make purchases or continue signing up for cards thinking that it’s like having free money. They just charge everything, only paying the bare minimum when the bill comes, and then end up wondering why they have trouble getting a house or car loan later in life when such needs arise.
Every little thing we buy, if not paid off, adds up and goes against our credit score that banks use to judge if we would be reliable in paying off various loans. Many people also end up paying almost double if not more, depending on your current interest rate, simply because they didn’t actually have the money to make the purchase in the first place.
The data listed below gives you an idea just how much you may have to pay with a couple different interest rates and minimum pay back percentages.
With a 2% minimum payment and 14% interest rate:
A $2,500 balance will take you 22.33 years to pay off and you will pay $3,054.87 more in interest.
A $5,000 balance will take you 29.25 years to pay off and you will pay $6,555.13 more in interest.
A $7,500 balance will take you 33.33 years to pay off and you will pay $10,055.43 more in interest.
If you are late and occur the 30% penalty rate, you will be unable to pay off your balance with a 2% minimum payment
By paying double on your minimum payment at 4% with 14% APR, you get the following data:
A $2,500 balance will take you 9.17 years to pay off and you will pay $973.79 more in interest.
A $5,000 balance will take you 11.17 years to pay off and you will pay $2,003.35 more in interest.
A $7,500 balance will take you 12.42 years to pay off and you will pay $3,032.59 more in interest.
If you occur the 30% penalty, you will be able to pay it off, but will be paying about 4 times more in interest than with the 14% APR.
I would encourage you to take a look at the tips below for having less debt. And don’t forget that it is possible for you to get a free credit report once a year online. Just search in Google if you ever want to know just how well you are doing, even if you are far from even thinking about buying your own house or new toy. It doesn’t hurt to start now.
Make every payment on time.
• Most data suggest that about half of credit card holders pay off their balances each month. But a study finds that 35 percent of cardholders pay late, thus accumulating penalty fees.
View credit as a safety net.
• Don’t live paycheck to paycheck or use credit cards and loans to finance restaurant meals, high-tech toys and new cars that you couldn’t otherwise afford
• Never charge more than you can afford to pay off in three months
Use the card with the lower interest rate for emergencies
Don’t carry the debt month to month
• “Any credit card debt carried month to month is a danger signal,” warned Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School3
Pay more than the bare minimum
• Avoid paying for long amounts of time with high interest
Use other means to acquire higher credit scores
• Using Debit or Prepaid cards will allow you to only make purchases with money you have
• Signing or Co-Signing a loan will help you have higher credit ratings if you can pay them off on time each month