This is a guest post from Tisha Kulak, a writer who writes about credit card offers, personal finances and credit card matters.
Credit card interest can be a financial killer if you are not handling your credit cards correctly. If you are only paying the minimum amount of money on your cards each month, you are setting yourself up for a large financial downfall. Imagine you carry a balance of $5,000 in credit card debt with an average interest rate of 16%, it would take you at least 12 years to pay off the balance. The balance would increase about $2,500 with interest fees, leaving you with a total bill of $7,500.
$2,500 could afford you many other things in life. That amount of money would pay for home repairs, a nice vacation, or an excellent deposit into a savings or retirement account. Paying that amount of money as an interest payment on credit cards is like using your cash for firewood.
There are steps you can take to help getting your credit card debt under control. Here are a few tips to keep you paying down your balances and not wasting your hard-earned money.
Stop Making New Purchases
You can never expect to pay down a balance if you keep adding new things to it. Use credit cards only for emergency purposes.
Get a Handle on What You Owe
Debt can be overwhelming and embarrassing; however, you will never be able to recover from debt without knowing how much you owe. Sit down with all of your bills and tally up your debt. Get a real picture of where you stand financially, no matter how bad the situation is.
Pay Card with the Highest Interest First
The cards you have with the highest interest rates will cost you the most over time. Start making your budget to include more than the minimum payment each month of the cards with the highest interest.
Keep Away from Penalties and Fees
Getting momentum to pay down your balances on high interest cards can be ruined if you are late. Being late or going over the limit on your card can cause your interest rate to skyrocket and therefore will thwart your plans for paying off your balance.
Consider a Transfer
If you have a low or 0% balance transfer credit card that can handle a balance transfer, it may save you a lot of money by transferring the high-interest balance to a card with a low or no interest.
Once you begin to realize the effect your effort makes on your debt, it will become easier to see the light at the end of the financial tunnel. Planning your family budget will be more realistic and you can anticipate a time period when your balance will be paid off. Once you have paid a balance in full, continue to use the amount you’ve been paying and pay towards the new balances of the other cards. If you do not have any other cards to pay off, take the payment amount you’ve been used to paying and stash the cash away in a savings account or other investment that is right for you.
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I have a retired college friend who has some money but not a millionaire who gambles on the stock market and when times are good brags about how well he is doing , he is a day trader. He lost out BIG TIME back in 2000 and again in 2008 . He bought a new Toyota back in 2008 while I bought a 2008 low mileage Lincoln Town car [ 13,900 miles ] . Instead of paying $ 45,000.00 for a new one , I paid $23,900.00 and saved $ 20,000.00 . I still have my 2008 Lincoln Town car , it has 44,000 miles on it and is like new. He in the mean time has bought a new Toyota in 2010 and again in 2013 . He has no pension whereas his wife does. She expressed concern that she will eventually have to support him . I guess he buys new cars in order to impress friends and family . Personally I could care less what people think as long as the car looks good and runs well. Will trade it in when it reaches 65,000 miles . I used to trade it in when it reached about 95,000 miles.
A Fool and his money are soon parted.
A car is a device to get you around in relative comfort and safety. Sheesh, people who go out and buy expensive cars to impress people they don’t even like, well they astound me. EOS!
cards are highest interest rates will cost you the most over time,budget to include more than the minimum payment each month of the cards with the highest interest.
No kidding — it really can be an endless black hole. A co-worker recently told me that when he got his very first credit card many years ago, he bought a pair of running shoes with it, but didn’t really know how it worked. He ended up owing $3,000 in late fees and interest. Pretty good way to learn how credit cards work.
Wow! Pretty expensive running shoes.
My question is, how on earth do people NOT know how credit cards work? Seriously, it’s not like they just recently came on the market. They’ve been around for 60 odd years.
I think your title says it all. That sentence would have been sufficient for the post. The rest was just gravy.
Mmmm, but yummy, yummy gravy. LOL
Indeed.. this concept hit home a couple months ago when we realized how much debt we had and decided it needed to get paid off. It’s insane how much credit cards are costing us.