In 2005, the average American had $8000 dollars of just credit card debt. Of course, the total amount of debt was much higher once you consider a mortgage, personal loans, home equity loans, student loans and a few bucks from mom and dad. Most people have more than one and in some cases a wallet full of the plastic cards. $8000 is a mountain of debt that most people can barely make the minimum payments on let alone try to figure how to get rid of it. Lets look at some options that will help you eliminate that debt.
Adjusting your payments on a credit card can affect your financial picture in the long term. The minimum monthly payments on credit cards use to be 2% of your total debt. If you have $8000 of debt and you are paying the 2% minimum or $10 which ever is more, prepare to pay that card off for 54 years and accumulate $23,000 in interest. The first payment would be $160 and it would trickle down to $10 as you paid the minimum each month. This calculation is based on an 18% interest rate. If you could maintain that payment of $160 each month, you could pay of the same credit card off in just under 8 years and pay less than $7000 in total interest. Just by maintaining your payment, you can see how you can eliminate much faster.
Credit card companies have doubled the minimum payment to 4% now. This has caused some people to file for bankruptcy since they could barely afford the 2% minimum. Now you have to pay $320 instead of $160 if you are the average American. If you can afford to pay that amount, it will take you less than 3 years to pay it off and expect to pay $2000 in interest. By doubling the minimum payment, you can pay it off much more quickly.
Let us also look at interest rates. It is easy to forget to look at the interest rate when making any financial decision. If you have several federal student loans accumulating interest at 3.5% and you have an equivalent amount of money in the bank, most would want to take that liquid money and pay off the student loans. This would be a mistake because you forgot to look at interest rates of investments. If safe and secure bonds are paying you 5% and you are only losing 3.5% on those loans, please do not pay it off. You can invest and pay the minimums on those student loans and capture that 1.5% interest difference. The same goes for credit cards. Pay off the ones that are higher first. If you have multiple cards, pay the minimums on the lowest interest cards and put the rest towards the highest. Once the highest interest rate credit card is paid off, figure out which card has the next highest interest rate and repeat. Do this until you are down to one card and you should be paying that off quite fast if you do not decrease the total amount that you are putting towards your credit cards each month.
As you can see, the more you pay per month will have an astounding effect on your total payments in the end. The first step is to budget yourself so that you can stop using credit cards, the next is to figure out how much you allocate to paying them off each month. Start by being aggressive on the highest paying cards and work your way down. The effects off paying off that debt will help you breathe easier and know that you are back on the right track.
Feb 13 2010
Debt Solutions – Pay Off Credit Card Debt
Nov 11 2009
Business Lines of Credit vs Credit Cards
Business lines of credit and credit cards have traditionally and effectively been used to finance small business operations. The similarities between these two types of financing are as follows:
Both, business lines of credit and credit cards are revolving
Both charge interest only on outstanding balances
Both have pre-determined borrowing limits
The primary difference between the two, however is that, credit lines tend to be more cost effective than credit cards by virtue of having lower interest rates and higher available limits. However, both methods of financing have their benefits and disadvantages and are not mutually exclusive. Along with a business line of credit you could also have one or more business credit cards especially for business expenses.
Benefits of a credit card as a financial instrument in small businesses:
Credit cards are very convenient as you can use it to charge all expenses instantly, unlike a credit line where you have to ask your bank to transfer funds to your checking account every time you need to make a purchase.
Record keeping is very easy as the bank will send you a statement regularly every month. It allows for you to check and track your expenses for tax purposes as well.
Moreover, with the increasing competition in the plastic industry, credit cards also come with perks like air miles, travel insurance, warranty extensions, and discounts on rental cars, hotels and gas. These benefits come in handy for a small business and help you to save costs.
Credit cards offer grace periods on purchases, which typically extend up to 25 days. Thus, if you are regular and pay your balances in full each month, you could avoid all unnecessary interest charges.
Benefits of a business line of credit:
A business credit line offers a maximum credit limit and flexible repayment schedule. Monies can be withdrawn by the customer up to the maximum limit, and the business credit line is replenished with regular, minimum payments.
With a business credit line, no new documents are required each time a credit advance is made.
In a business credit line you write yourself an advance, in effect, by using the home equity checks supplied by the lender or the bank.
Oct 14 2009
Freedom From Debt is Possible
In today’s world it can seem almost impossible to have freedom from debt. But you can live debt free with a little discipline and knowledge in the right areas. You need to learn some real world skills that can give you the most out of the money you make. Many of us make enough money to live a comfortable life.
First thing you need to do is make a list of all your debts: mortgage & auto loan, credit card and other personal loans. Prioritize your debts. Decide the debts that you want to pay off first. Some financial experts say freedom from debt is possible. But recommend paying the debts that have higher interest rate while making minimum payments on the rest. While there are others who suggest going from the smallest debt to the largest one, because this helps to give you a sense of accomplishment that can help you stay with the plan.
The next step is to list down all the priority expenses such as phone, electricity, food, clothes and other non-priority expenses such as entertainment, gym, dinner at restaurant & etc. Then record down your monthly income. Decide how much money you are left with at the end of each month to pay towards your debt. Are you charging your purchases instead of paying in cash or debit card? How often do you use your credit card on those insignificant purchases when you could have just as easily used cash or even your debit card? This raises your balances and costs you more money in interest. Use cash, check, or a debit card and save yourself some money. Then freedom from debt is possible.
You need to make a budget. Many people feel that budgeting is just a waste of time, but in all actuality budgeting will show you exactly where your money is going and benefit you greatly. It will stretch your dollars further and help you keep track your spending. Budgeting is a very useful and should be used in your home every month. You will be surprised by how much you spend and you will be even more surprised by how much you save if you set up a reasonable budget that the whole family can live within. Freedom from debt is possible. All you need to do is make a list of all your debts. Decide the debts that you want to pay off first. You need make a list of your priority and non-priority expenses and set up a reasonable budget that the whole family can live within. It’s a great feeling when you can live free of debt. You can do it, you just need to get started and the rest will be easy.
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