Many of retailers are implementing easy payment scheme for their products or services, with some fraction amount of money for monthly installed, you can buy thousand of dollars of items or go for a luxury vacation which you can't afford to buy if one lump sum of money is needed, these monthly installment are automatically charge to your credit card. Every month, you just pay the minimum amount of your credit card balance and you continue spend on your credit card. Let use a case study to review on how a person credit card debt can grow and how it will take to get rid of it.
Case Study
Scott earn $2,500 a month, he is holding a credit card with interest rates of 12%. All his credit cards allow him to pay a minimum of 3% or $10 which ever is higher. His credit card limit is $15,000.
Scott's credit card balance at current month is $4,550 ($3000 in principle and $1550 interest). He tends to pay the minimum of his credit card balance and each month he will averagely swipe about $500 on petrol and other utilities.
Let see how's Scott's credit card balance grow:
Month 1
Credit card balance = $4,550.00
Minimum Payment = $136.50
New Credit Card Spending = $500.00
New Balance = ($4,550 - $136.50 + $500.00) = $4913.50
Month 10
Credit card balance = $7976.02
Minimum Payment = $239.28
New Credit Card Spending = $500.00
New Balance = ($7976.02 - $239.28 + $500.00) = $8236.74
Month 20
Credit card balance = $11109.85
Minimum Payment = $333.29
New Credit Card Spending = $500.00
New Balance = $11109.85 - $333.29 + $500.00) = $11276.55
Month 30
Credit card balance = $13662.60
Minimum Payment = $409.88
New Credit Card Spending = $500.00
New Balance = $13662.60 - $409.88 + $500.00) = $13752.72
Month 36
Credit card balance = $14961.02
Minimum Payment = $448.83
New Credit Card Spending = $500.00
New Balance = $14961.02 - $448.83 + $500.00) = $15012.19
If Scott continues his practice, his will hit his credit card limit after 36 month compare to current month.
Let say Scott stop using his card with the balance at month 36 of $15012.19 and continue paying the monthly minimum. It will take him 228 months which equal to 19 years to just to pay off his $15012.19 debt.
The above example is just a simple case study to show you how your credit card debt may piles up so quickly without you even aware of it. You need a lot of time and spend a lot of money on interest in order to get rid of this debt. In real life, many people have more than one card and other loans to support; hence situation may even worse.
How to get rid of credit card faster & affordable?
If you are already at this situation, the first thing you need to do is to change your behavior of paying the minimum only. Paying more each month will definitely pay off your debt faster but the question is you may say that you can't afford to pay more than the minimum. In actually fact, the easiest, faster and affordable way to get rid of your credit card debt is maintain your current minimum monthly payment.
For example, we use back Scott's case. If he affords to pay the minimum payment of his $15012.19 debt, which is $448.83, this is his affordable payment. If he continues to pay $448.83 every month instead of the minimum of his credit card balance, he will need only 43 months to pay off his debt as compare to 228 months. This mean, Scott will have his debt free life in less than 4 years instead of 19 years.
In Summary
Credit card will remain important in many people life, use it intelligently for your convenient, but you much carefully manage your credit card balance, don't let this plastic money drag you into financial crisis; the ideal way is pay the balance in full each month.
In recent years there has been a growing incidence of consumers carrying hight credit card debt. Many are finding this debt burden difficult to handle, but would rather not examine whether they may be compulsive when it comes to using credit cards. Denial can run deep. Those with heavy debt are reluctant to admit that they may be compulsive and out of control when it comes to managing their money. Facing it is simply too painful.
Probably most people who are finding that substantial credit card debt is proving difficult to manage will not care to dig very deeply into this topic. Such is the nature of denial. We'd prefer simply to ignore any examination of signs that we may be compulsive and out of control around money. It's too painful to contemplate.
Indeed, most who have dysfunctional and compulsive tendencies when it comes to money will not begin to look closely at their debting behavior until it reaches crisis proportions. Only then, as panic begins to take over, will a degree of willingness to examine one's relationship to money, personal finances and debt begin to creep in.
Often, the first impulse when a personal financial crisis erupts is to blame others and assume the role of a victim. Obviously, this offers no solution, and probably will compound the dilemma. Next, some willingness to seek debt help may occur, and the debtor then looks at the possibilities of borrowing from family or friends, thus dragging others into the problem who don't deserve it.
If that fails to work, alternatives such as debt consolidation, refinancing a mortgage and even bankruptcy are considered. These measures can reduce debt and provide some relief, but always fail to address an underlying problem of compulsive debting.
If you find yourself in this situation, there are a number of clear signs that you may be a compulsive debtor. Here are a few questions you might ask yourself:
1. Is it difficult for you to pass up buying something on credit because it's a really good deal?
2. Does having the ability to whip out a credit card for purchases give you an ego boost, a feeling of being accepted, like being grown up or a member of a privileged club?
3. Are you using one credit card to pay off another?
4. Do you bounce checks from time to time?
5. Are you having problems meeting just ordinary personal expenses, and do you get a feeling of accomplishment when these obligations are satisfied?
6. Do you live in drama and chaos when it comes to money, continually having a crisis to deal with?
7. Are you vague about your personal finances, not being clear about how much you owe, your monthly expenses, interest rates and the like?
There are a number of other indicators, but, if you answered several of these questions affirmatively, then you may be a compulsive debtor. Debt relief will evade you until you get a grip on the belief systems and behavior underlying your money problems. Credit counseling is probably in order, and you might benefit from a spiritual program such as Debtors Anonymous.
Both Cornie Herring & Robert G. Knechtel are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Cornie Herring has sinced written about articles on various topics from Credit Cards, Financial Planning and Free Credit Report Score. Cornie Herring is the Author from . "StudyKiosk-Credit Basics" is an informational website on credit basics,. Cornie Herring's top article generates over 49500 views. to your Favourites.
Robert G. Knechtel has sinced written about articles on various topics from Cosmetic Surgery, Cosmetic Surgery and Credit Cards. Robert G. Knechtel operates several websites covering personal finance issues concerning credit card debt, including which highlights. Robert G. Knechtel's top article generates over 12100 views. to your Favourites.