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Author: David Berky Article source: http://www.articlealley.com/. Used with author's permission.
How much do YOU owe on your credit cards?
The average American family is now over $7000 in debt just on
their credit cards. That debt generates an interest charge of over
$105 each month if your card charges the average 18%. If you
have missed a payment or made a late payment (even by one
day!), you may be paying up to 27% interest or over $157 each
month.
Most credit card companies require a modest payment towards the
card balance. Modest meaning from $10 to $20 a month. To pay off
a $7000 debt at $20 a month you will not pay off this debt for 29
years.
And what about those interest charges? Paying off a $7000 credit
card debt charging an interest rate of 18% and paying $20 a
month towards the debt, you will pay over $18,400, more than
TWICE the original debt, just in interest.
What if you have more than one card? What if your debt is over
$7000? What can you do? How can you get out of this hole?
There are some techniques that can help you pay off your debt
and do not require expensive loans, invasive credit checks, or
expensive financial planners and accountants. You can also save
on interest charges by paying off your debts in a certain order.
The most effective technique is sometimes called the "snowball"
method. The snowball method suggests that when you pay off one
debt you apply that payment amount to the next debt. Thus the
amount you pay on a debt grows like a snowball rolling down a hill.
For example, you have three credit cards with debts of $5000,
$4000, and $3000 which are charging you 18%, 27%, and 12%,
respectively, and you are paying $150, $125 and $100 each
month. By paying these required monthly amounts you will pay off
your $3000 credit card first.
Now that the $3000 card is paid off you have an extra $100 a
month. Put that extra $100 toward paying off your next credit card
debt. Now you are paying $225 a month on the $4000 card and
the $150 on the $5000 card. With this accelerated payment on the
$4000 card you will pay off the card earlier and save some money
on interest charges.
Then apply the $225 payment to the $5000 card for a monthly
payment total of $375. Soon this card will be paid off and you will
have $375 extra each month to pay off other debts or better yet,
INVEST!
So, which debts should get paid off first?
Generally, you want to pay off the debts that are charging you the
highest interest rates first. In the above example you could have
added the $100 payment to the $5000 credit card rather than the
$4000 credit card. But the $4000 credit card is charging you 27%
where the $5000 credit card is charging 18%. By paying off the
card charging the higher interest rate first, you will save some
money on interest charges.
If this sounds too confusing, you can enlist your computer. You can
search the Internet for the keywords "debt reduction calculator" or
you can visit http://www.simplejoe.com/debteraser/index2.htm
and review a product named Simple Joe's Debt Eraser.
Simple Joe's Debt Eraser helps you create a Rapid Debt Reduction
Plan that is customized to your debts and your situation. Just enter
your debts and the amount you can afford to pay each month. The
software will create a plan telling you how much to pay towards
each debt each month until they are all paid off.
You CAN pay off your debts. The trick is to stop charging purchases
to your credit cards and develop a debt reduction plan. Your plan
should include "snowballing" your payments and prioritizing the
debts by high interest rate.
David Berky is president of Simple Joe, Inc. which sells the Simple Joe's Debt Eraser PC software. Debt Eraser can help anyone get out of debt quickly and inexpensively by creating a Rapid Debt Reduction Plan.
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