How to Get Out of Debt - Understanding Credit Cards
Having easy access to a credit card can often make the difference between being able to pay for an emergency situation and finding yourself in big trouble. For example, if your car suddenly breaks down and you do not have the cash to get repaired, a credit card to make it possible for you to get the maintenance that you need so that you do not miss work due to a lack of transportation. As beneficial as credit cards are, however, they also have a dark side that many individuals fail to recognize until it is too late.
One of the biggest problems with credit cards is that many individuals simply do not understand the terms of the credit card that they are using. An individual who regularly uses their credit card that only makes the minimum monthly payment may be surprise if they were actually look at their monthly statement and see how little of the money they are paying actually goes to the principal balance that they owe. Credit card companies make their money based on interest rates, not the actual funds that are borrowed. An individual who only make the minimum payment may find that despite regularly sending money in, there balance continues to grow.
An average individual with a good paying job and a high interest credit card with a balance of $8000 who is only paying the minimum payment would spend 30 years paying off their credit card if they never used it to charge another item. That is a shocking statistic that many individuals are completely unaware of. The minimum monthly payment generally goes to about 2% of the balance while the rest goes to interest. The remaining balance continues to draw interest, making the next months balance even higher.
Fortunately, an individual looking to eliminate their credit card debt can do so simply by making a few small changes to the way that they handle their money. That same individual with the $8000 of high interest credit would be able to pay the card off completely in less than three years simply by setting aside $10 a day to apply to their debt. Making the minimum monthly payment on a credit card is the surest way to ensure that the debt does not completely go away for years, possibly decades, to come. Simply by doubling them payment, an individual can pay their card off in a fraction of the time.