Repaying Credit Card Debt Is Achievable!
When you have credit card debt, it can feel absolutely hopeless and overwhelming to climb back out. The temptation is to ignore the credit card statements or even skip payments, fearing you can never get it paid off. Psychologically this can cause stress resulting in medical problems such as ulcers, insomnia, depression, and other health problems.
The Federal Reserve Board's most recent Survey of Consumer Finances includes some eye-opening details on credit card use up to 2004. 46% of consumers carry credit card debt, and most carry at least $5000. Reports suggest almost half of people in their twenties stop making credit card payments, no doubt feeling overwhelmed and unable to keep up with the mountain of debt incurred. As high as credit cards can make us feel, they certainly bring us crashing down. No wonder people are tempted to just avoid checking their statement.
That said, repaying your credit card debt and building up a great credit score is absolutely possible. It will inevitably take time, and there's no instant fix, but with our debt repayment calculator and some careful planning you can pull yourself out of credit quicksand.
Don't Be Tempted To Stick At The Minimum
However tempting it may be to just make your minimum payment, you must realize that amount is calculated by the credit card company to maximize their interest return. Ultimately you can easily end up paying more in interest than you spent on the balance. For example, with a credit card balance of $5000, a typical interest rate of 18%, and a minimum payment of $100 each month, you could be paying your credit card off for 93 months – that's nearly 8 years! And you would end up paying an extra $4300 in interest charges, even if you never make another purchase using your card.
Wherever possible, try increasing your payment well past the minimum. Double the minimum is a good target. In our example of $5000 borrowed at a rate of 18%, you can actually pay it off in less than 3 years by simply doubling your minimum payment. The resulting total is $6400, so you save a whopping $2900 too!
When you find yourself with a rate increase and promotion at work, try adding the difference to your credit card payment each month. You'll never notice the money and it won't feel lost, plus you'll get out of debt quite a bit faster. For example, dial up your monthly payment to $300 per month and you can pay off your credit card debt in 20 months. You'll be debt free less than two years later and only $1000 of your hard-earned cash has gone to interest.
Cutting Corners Makes A Huge Difference
Perhaps doubling is just not possible for you. Consider looking for small ways to cut back and you'll find the extra money you can come up with can make an impressive difference. For instance, try cutting out your daily latte habit, and save an extra $2/day, then put it on the credit card. If you were to increase your credit card payment from our $100 minimum above to $160 saved on latte, you could pay your balance off in 43 months rather than 93. That's over 4 years sooner, just by making coffee at home! You would also end up paying only $1880 in interest, rather than $4300 on a minimum payment schedule.
Any little bit helps. Why not buy frozen pizza from the grocery store rather than ordering out twice a month? Yes you'll need an extra twenty minutes to bake at home, but otherwise you'd be waiting for delivery anyway. Eat in those two nights you order pizza at $20, and you've got an extra $40 for your credit card payment. Surprise, your credit card could end up paid off in 52 months – just over 4 years – and you've only paid $2280 into interest.
So Set Up A Schedule That Works For You
As you can see, there's a great reason to be honest about your credit card debt and realistic about paying it off. While we all know how crushing that deep into debt feeling is, we all need to know that getting out is absolutely do-able. Just pull up our debt repayment calculator, find ways to add a little extra to your minimum payment, and honestly determine how your little differences can make a huge impact. With a little ingenuity and some planning, you can rescue yourself!
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