Are You Underestimating Your Credit Card Debt?

Are You Underestimating Your Credit Card Debt?
by: Jacque LaMantia



Have you fallen into this trap? Repeatedly, reliable survey sources tell
us that most of us do not realize how much we spend every month using our
credit cards. Investigations reveal that when consumers thought their
total credit card debt was about $20,000, in fact it was closer to
$40,000. Scary difference - consumers are spending a lot more than they
think! When we routinely pay for everything with the plastic card and
don't keep track of what we spend, these careless spending habits all too
often lead to debt problems - problems which can easily be avoided.

To add to the problem, most of us have several credit cards, so if you
use them to pay for everything, then you also transfer the balances from
time to time to get a better interest rate, it’s easy to miscalculate how
much you’re spending. With so many credit cards and with so many
different payment options, it is easy to see how overspending can occur.

Six out of ten consumers don’t even know their account balances, so funds
could be withdrawn in fraudulent transactions without them even realizing
it! Now if you don’t keep track of your money, who else is going to? So
what you need to do, if you haven't done so already, is sit down and get
an understanding of where you stand with your credit card debt. Double
check what’s coming in and what's going out, make sure everything
balances at the end of the month, then continue to keep a tighter grip on
your accounts.

Tighten Your Belt

Do you find yourself in this situation? Do you worry about reducing your
debt? Life is certainly easier and more convenient if you have at least
one credit card, but it needs to be used properly. Credit cards ideally
should be used only when they are paid off each month or in the case of a
true emergency. Credit card companies love it when we only pay the
minimum payment every month, but if you only pay the minimum payment
every month on a large balance and continue using your credit cards, you
will never pay them off!

The banks and credit card companies are merely adding on more interest,
and it will take longer for you to pay off the credit card bills. So what
began as a small credit card bill could escalate into thousands of
dollars, because they are raking it in while the interest rates are
crippling us. . Say your credit card statement arrives and your balance
is $2000 and the minimum payment is $40, which is 2% of your balance. If
you continue paying only the minimum payment, most of your $40 is paying
the interest and hardly any is going towards your balance.

If your debt is escalating out of control, it is time to tighten your
belt and begin the process of becoming debt free. The best way to reduce
your credit card debt is to stop using your credit cards, or better yet,
cut them up (to avoid temptation). This will be painful at first, but it
will save you a substantial amount of money in the long run.

Sit down and calculate how much more you can pay each month than the
minimum payment. Once you have worked that out,stick to it even when you
see on your statements that the minimum payment required is going down.
Don’t be tempted to reduce your payment or you'll be back to square one
in no time. If you have more than one credit card, make the highest
payment each month that you can to the card that has the highest interest
rate. Keep paying the minimum payment on your other cards until the card
with the highest interest rate is paid off, then add that payment to the
minimum amount you are paying on the next highest card until it is paid
off, and so on until all your cards are paid off.

Let's Look at a Case Study

Let's take a look at a case study of one creditor who had stopped using
her credit card and was trying to pay it off, but who felt like she
wasn't getting anywhere. And, in fact, she wasn't. Like many others who
don't fully understand financial matters, she believed that if she
stopped using her credit card and paid the minimum monthly payment, she
would soon be debt free.

But here is a simplified example of what really happens (the numbers, of
course, would be different depending on the total amount owed, the
interest rate, etc.). Let's say her credit card statement showed a
balance of $5810.00, at an interest rate of 18%, with a minimum payment
of$120.00 per month. Based on the way her bank calculates the minimum
required monthly payment, If she never uses this credit card again and
continues to only make the minimum required monthly payment, while
interest charges continue to accrue every month, it will take her 96
months (that is 8 years!) to pay off this balance. She will pay total
interest of over $10,000.00!

If, however, she can pay more than the minimum payment each month, say
$200.00, she could actually pay this debt off in about half the time. By
paying $200.00 instead of $120.00 per month, she would then pay off this
credit card in 42 months (3.5 years) rather than 96 months (8 years),
paying only $7,362.00 in interest instead of $10,000.00, saving $3524.00
in interest charges. See what a difference this makes?

You Can Be Debt Free

Millions of Americans have tightened their belts and managed to pay off
heavy credit card debt using just such methods. There is no reason you
can't be one of them. But in order to get rid of credit card debt, it
isn't enough to merely make the minimum monthly payment. You need to
calculate a plan to pay as much more than the mimimum payment each month
as you can, and you will not only get out of debt in a shorter time
frame, but you will save hundreds or even thousands of dollars in
interest charges. This is one of the simplest ways you can start right
now to begin your program to become debt free.

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About The Author
Jacque LaMantia has extensive business and administrative experience in
multiple fields. She now works from home in Internet Marketing and likes
to share information and resources with the public and other
entrepreneurs. You can visit her websites at
http://www.debtcreditrepairpro.com; http://www.affiliateincomesource.com;
http://www.affiliateincomesource.com/blog, or you can email her at j-la@debtcreditrepairpro.com