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.
© 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.
Check out other books on Amazon.com for reducing credit card debt.
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MSBJ Holdings LLC's editorial objective is to provide our readers with a forum for personal suggestions, investment ideas, and health & fitness recommendations. Our articles should not be construed as specific advice for the reader, nor does any article imply an endorsement by MSBJ Holdings LLC. Your best course of action must be based on your individual situation.
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