Are you a victim of the "Credit Card Trap"? Too much debt? No end in sight? If you are, here are some ways to free yourself.
I've been helping people become Debt Free for over 10 years. The average person that seeks help for getting out from under too much debt, got into trouble by falling victim to the traps set by the credit card industry!
I saw this sign (above) yesterday in the parking lot of a major retailer and took a picture.
"Shop now, pay later"...pretty much says it all, doesn't it?
Years ago (many,many years ago), a credit card was not easy to get. You had to have excellent credit, above average income and employment history...basically, you didn't really need one.
The idea of using a credit card was for convenience. Rather than having to carry a lot of cash or write a check, you could just whip out the credit card. Then, when the statement came, you paid it off...100%.
The credit card industry charged a reasonable interest rate, demanded a minimum payment of around 3% or more, and made zillions of dollars.
One day, someone in the credit card industry looked at the numbers (profits) generated by these cards and realized that they actually made more profit from fees, such as:
- Annual fees
- Late fees
- Over-the-Limit fees
...than they did by the interest rates they charged!!!
Again, years ago, most credit card account holders paid off the account each month. Then, someone got the bright idea that if an account got paid off, then there would not be little, if any, profit from interest rates and fees.
What to do????
They came up with the idea to only charge a very small monthly minimum payment so that more and more people could charge their accounts to the limit and only have to pay 2% or so each month based on the balance.
Let's say you had an account with a $5,000 credit limit and so far, your balance is only $2,000. $2,000 x 2% = $40, but you send in the $50.
Before I get into the details of how much this will cost you over time, let's talk about the really dangerous CREDIT CARD TRAP....
Have you ever thought (or done):
"Since I have a limit of $5,000 and I only owe $2,000 with a $50 a month payment, I'll charge another $1,000 and my payment will only go up $25 or so."
This is where most people start getting into real trouble. Before you increase your debt, check out what your credit card company is really charging you:
OK, let's say you didn't increase the balance. Next month, you get your bill and as you start trying to understand it (right!), you notice that there was an interest charge of $35!!! How can that be?
You also notice that the Annual Percentage Rate (APR) is 21%. Although there are various methods different companies use to calculate the interest due, for simplicities sake:
$2,000 balance x 21% = $420 (annual interest based on $2,000)
For this month, you divide $420 by 12 (months) = $35
Now you see the account summary and notice:
Previous Balance $2,000
Interest charge $ 35
Payment ($ 50)
New Balance $1,985
That's right, your balance was only reduce by $15!
Now, you don't have to be a genius to figure out that at that rate, you are going to be paying on that debt for a long, long time to pay off that credit card.
Think about that for a minute...
When you finally pay off that debt (at the small minimum monthly payment), you will have paid at least 2 to 3 times as much as the original balance!
And, don't forget about those fees!
THERE IS A BETTER WAY!
Depending on several factors such as:
- Your employment (self or W-2)
- Marital status
- Health (disabled?)
- Age (retired?
...you would most likely qualify for one of the following programs:
Rather than get into each plan, I've attached links (above) to previous blogs or more information you can access for FREE.
Credit Cards are a very dangerous trap and should be avoided and/or managed at all costs! Please proceed with caution!