Credit Card Blues

by : Peter Kenny

For many consumers the largest expense they have each month is their credit card bills. Often this is only exceeded by their home mortgage payment. The number of people who are in deep debt with credit cards is staggering, and many of these people are facing tough times because of this debt. This article explores some of the ways that you can bring credit card debt under control.

Credit cards are not "bad" in and of themselves. The problems with credit card debt begin when too much has been charged to them. This is especially true if the charges were for non-essential items. Far too many people use their credit card to make purchases for lesser priced items when they should be paying with cash.

For those individuals who are not too far into credit card debt the best policy is to pay off the balance each month. If you pay the entire balance before the end of the stated grace period you will not be assessed finance charges. These high-interest finance charges are the reason so many people can never seem to get out of debt. By avoiding them in the first place you will ease your financial obligations considerably.

When you only make the minimum payment (or any payment that is less than the entire balance) finance charges begin to kick in. Here is an example of how this can affect your budget and your financial future:

Credit Card Debt Total: $1,000
APR: 18%
Monthly Payment: $25

If you just pay the minimum payment it will result in the following:

Time to Pay Off: 11 years
Interest Paid: $1,115.41

As you can see the interest that you would pay for this account is more than the original credit card debt total. Also, you are looking at over a decade of payments just to pay off this one charge.

When you add to this that most consumers have more than one card, you can begin to see how devastating this can be to anyone's finances. To make matters worse, many consumers have much higher credit limits than the above $1000 so the problem only compounds itself.

If you are in serious credit card debt, you may need to speak with a credit counselor who can help you set up a budget and help you work something out with your creditors. Missing payments or submitting numerous late payments will only hurt your credit history reports and may have a negative impact on your future ability to borrow money or take out any type of loan.

Those who are in deep credit card debt should also stop using the cards immediately. For many people this is not easy, but it is the first step to financial recovery.

Those with more than one active credit card should also sit down and write out the balances that they owe for each card as well as the monthly payment required for each card. This is a good way to see (in black and white) exactly where they are as it pertains to credit card debt. Knowing the extent of the problem can help you make the best decisions on how to fix the problem.