The true cost of credit card debt

Lets take a look at Elizabeth, who was an ulcer thinking about his $ 5,000 debt to a credit card. Elizabeth is quite typical of cards, 18 percent with an annual interest rate and a minimum monthly payment of 3 percent of the unpaid balance on the card. She decided to bite the bullet, stop charging anything on the card, and repay its debt. His initial plan was to pay just the minimum payment each month. Elizabeth felt very proud of this game plan ( "Hey, at least I'm not ignoring the law.").

Just pay the minimum monthly payment would be winding through Elizabeth forking over a total of $ 9850-nearly double the amount of $ 5,000 debt credit card. To add insult to injury, it would take an enormous its thirty-four years to repay.

What Elizabeth did not realize that not all of its required minimum monthly payment would go towards reducing its debt. Trying to pay your debt by making only the minimum monthly payment is a bit like trying to lose weight through strict diet throughout the day and eat five to donuts right before going to bed. It is difficult to advance progress. With credit cards, which holds you back is the part of the minimum monthly payment that goes to the credit card company for interest charges. This is the amount shown in the shaded column in the table, and it adds to much of the change. This interest is primarily the fee as the cost of credit card in exchange for you to borrow money from them. The money from your monthly payments will first repay your interest, and only then that the outstanding amount towards your original debt.

"What does this mean for Elizabeth is that it will pay its purchases beyond the time they found their way into the city dump."

So the next time you think of the $ 100 pair of trendy jeans on your credit card and not pay your minimum monthly payment, remember that the jeans could cost you $ 100 but not $ 200 . Just pay the minimum monthly amount required to double the cost of everything you buy. Understand the real cost of debt credit card will help you decide if this additional purchase worthwhile for you.

"A woman is financially sophisticated: Credit cards are not free money"
Moreover, if Elizabeth paid only $ 50 more per month, every month. During the minimum payment required, it would pay its debt to less than five years and reduce the total interest payments to $ 1950. It's still a lot, but this is not the huge $ 4850 she had to pay interest costs if it does the minimum monthly payment required.

If you are interested in calculating the digits of your situation, you can visit a website such as www.bankrate.com or www.dinkytown.com and use calculators credit card (or an engine web search like Google or Yahoo and type of credit card calculator "to find other sites). Enter your current outstanding balance, your interest rare, and your minimum payment required or the maximum amount you can afford to pay each month and the calculator tells you how long it will take to repay your debt. If you do not know the interest rate you pay, look at your last credit card bill. If you do not have a old bill, please call the telephone number on the back of your credit card and ask the representative of your interest rate. We strongly recommend you do so.