CREDIT CARD DEBT
Credit Card Help
While it has never been easier to get a credit card today, it has also come at a very high price. Many Americans could use credit card help as debt is rampant and shows no signs of improving soon.
For most people, it’s become accepted to spend more on your credit cards every month than you make in income. Regardless of the reasons why, this instant financial gratification is destroying the finances of many families.
So, what do the majority of people do when they spend more than they make? They make the minimum payment on their credit card. While this may have become an acceptable habit, there are many reasons why it is a bad idea and they should seek credit card help.
With the standard minimum payment of 4% being charged by major credit card companies, it will take several years to pay down a debt. Why? Because you’re also having to pay an average of 18.9% interest on the credit card balance to boot.
Making the minimum payment each month is like being caught in the hamster wheel constantly running, but getting nowhere. But this situation can be changed with credit card help from the expert counselors at Golden Financial Services.
HOW YOUR DEBT IS CALCULATED
Each card can be different, but generally speaking the minimum payment is simply a set percentage of your balance. Some cards are as low as finance charges plus 1% while others may base the minimum amount upwards of 4-5% of the balance. What you have to realize is that with a typical credit card APR that the minimum payment will generally cover only a little more than that month’s finance charges, meaning at best only half of your payment is going towards paying down the balance.
For a very simple example, let’s take a look at a credit card balance of $1,000 with an APR of 18%. If you break the APR down to a monthly rate you are effectively being assessed a finance charge on the balance of 1.5% per month. Let’s also assume that the minimum payment is calculated by using 2.5% of the balance.
This means your minimum payment in the first month is $25, or $1,000 x 2.5%. With the APR at 18% and an effective finance charge of 1.5% that means of that $25 you paid, $15 is simply paying the finance charge leaving only $10 actually applied to the balance.
So the next month your remaining balance is $990, or $1,000 – $10. Your next minimum payment is $24.75. For this payment you will see $14.85 going towards the finance charge and only $9.90 going towards the balance. Your new balance is now $980.10. You have sent the credit card company nearly $50 of your hard earned money and have only reduced your balance by $19.90. That is quite a raw deal for you, but a great deal for the credit card company.
Ultimately, using this example if you continue to only make the minimum payments for the life of the balance it would take you 153 months or 12 years and 9 months to pay off the card and you will have paid $1,115.41 in interest; even more than the original amount you borrowed! In reality, it probably wouldn’t take this long because most card companies have a flat rate minimum if the calculated minimum payment is under say $10 or $5. Even so, it would still take years to pay off a $1,000 balance if you only paid the minimum each month.