Credit card companies are in business to make money. Make no mistake about that. And if you are not smart about your credit card debt, you can end up making them 18 percent on their investment at about a $1,500 per year cost to you. Whether you enrich the credit card companies or save the money yourself is up to you.
And if you turn around and invest just the savings on your credit card interest, it can amount to a pretty nice little nest egg for the future.
If your card charges 18 percent interest, and you owe $5,000, your credit card company may want you to make a minimum payment of $150 a month. Even if you do not buy anything else, it will take nearly four years to pay off the $5,000, and you will end up paying $2,000 on top of it interest charges. That can turn into a huge chunk of money over the years.
By 2007, Americans carried an average of $6,600 of credit card debt, according to CardTrak.com. Millions of consumers regularly carry much more than that. And that's just credit card debt, often the most expensive kind. Typically, the nominal interest rate on a home equity loan or mortgage is less than half that of credit card rates.
If all that debt represents a liability, it also represents enormous opportunity. Getting rid of credit card debt is the equivalent of earning an extra 18 percent. It makes sense to start reducing debt as soon as possible. Chase offers some of the .
The best way suggested is to select the card with the highest interest rate and reduce the principle on that card first. Other steps in a realistic plan to reduce credit card debt would include creating a cash flow budget, avoiding new debts and reducing spending overall.
Then, after you have reduced your debt down to levels that will allow you pay your monthly balance in full, do it. If you don't carry a balance from month to month, you are essentially using the credit card company's money as an interest-free loan.
Credit card companies want "revolvers", people who carry a balance from month to month and, thus, pay interest every month. "Transactors", as they are called, pay off their balance every month and card companies put up with them in hopes that they will eventually becoming revolvers.
By becoming a transactor, rather than a revolver, you can save, and even make, lots of money. If you save $1,500 a year in credit card interest, it can add up to $45,000 in interest savings over 30 years. If you invested $100 a month out of your interest savings in a mutual fund earning 9 percent, it could add up to roughly $184,000 in 30 years.
Whether you opt for the investment or just the savings, it is still quite a sum. Over a lifetime, a little common sense about credit card debt and a little simple math can pay great dividends.
To try and stay in the black, consumers are using cash and store cards for their purchases more and more. Department stores like M&S and Debenhams have noted an increase in cash and store card transactions. There is a decreased use in credit card spending in stores, mainly, it is is believed, because shoppers are now having to resort to using them to pay for basic household expenditures, such as utilities and mortgage or rent.
A GfK NOP poll showed consumer confidence slipping lower than it has been since the recession of 1990 due to falling house prices and rising household expenses. Roughly 2 million British citizens have had their credit card limits lowered during the past six months.
Store cards are one of the most expensive ways to borrow and increased usage demonstrates consumers were in financial trouble. Everyone has their own ideas about borrowing, but whether you are a cautious cash-only spender or you don't mind resorting to using credit cards, you should still be wary of using a store credit card unless it is a last resort due to high cost of interest associated with them.
Average store cards carry a rate of 22% and can get as high as 31% If you compare with 17% on credit cards, it looks very high. A recent study discovered that roughly 4 million people pay rent or mortgage with a credit card. Aside from payday and doorstep loans, using credit cards to pay loans or mortages is more costly. This is a bad sign of what is happening in household finances activities in UK.
It's not a good course of action and may be even a bit reckless, but if your only choice is losing your residence, then it is a reasonable course of action. You should first ask for guidance from Citizens Advice, because it would be unwise not to get assistance for which you are eligible. Don't feel bad if you have to use your card in case of an emergency because it might allow you some time to regain control. It can't make things worse. Credit card debt in not secured by property, but if the rent or mortgage isn't paid, you'll find yourself with nowhere to live in only a few months.
Both Caden Flynn & Amy Whittingham 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.
Caden Flynn has sinced written about articles on various topics from Credit Cards, Check Credit Rating and Credit Loans. Join Caden Flynn at . Knowledge is power - get more power and find out more about. Caden Flynn's top article generates over 135000 views. to your Favourites.
Amy Whittingham has sinced written about articles on various topics from Credit Cards, Debts Loans and Home Improvement. Amy is a freelance journalist writing about financial issues, whilst working on on behalf of. Amy Whittingham's top article generates over 27100 views. to your Favourites.