Credit Card Reality

May 28th, 2009 | Posted in credit card debt

As Thomas Jefferson said, “never spend your money before you have it.” Sadly, credit cards have become a necessity as opposed to the luxury they are supposed to be. The reality is a lot of us use our credit cards to impulsively buys things we want but do not need. The problem comes in the lean times, and you find your interest rate skyrocketing because you made a late payment.

In the first quarter of 2009 18% more people are late with their credit card payments than they were one year ago. This can wreak havoc to your credit score making future bar a more costly, and potentially even stopping you from buying a home or car. All it takes is a payment that is a single day late and your interest rate could soar to 28% among or hire. Not only that is, the late payment is reported to the credit bureaus which affects your credit score. This change to your credit score gives all your other lenders the legal right to raise your interest rates as well. This could get very ugly very fast.

Now imagine you borrow thousand dollars. You pay this thousand dollars back at the minimum required balance, let’s just say 2.5% or $25 a month for our example, it will be 13 years later before you pay off the loan. What’s more, you’ll have paid $1115.41 in interest over all that time. That’s assuming you never have a late payment and don’t get hit with any fees.

It’s best to pay your credit card in full monthly. If you can’t do this, pay more than the minimum every month. If you need to take out a second job in order to pay more every month, you should already be reading the classifieds. Be certain to pay on time. You need to make sure your credit score goes up not down. Paying on time will be a big help in preventing your interest rate from climbing. It also saves you on exorbitant late fees. If you have no other choice sell anything you can to pay for your debt.

Put the bulk of your payment towards the credit card with highest interest rates. Once you’ve paid this debt down an appreciable amount, or you’ve established a few months of regular on-time payments, you can contact your credit card company and trying to negotiate a lower interest rate. They may want more than six months of on-time payments before agreeing to terms.

The end goal is to pay off all of your credit card debt and make sure that you only charge what you can afford to pay off right away. As long as you have credit card debt you will be endangered to credit card companies. The fruits of your labor will reward them, leaving you penniless and broken.