Avoiding Credit Card Minimum Payment Traps
Whenever you decide to use a credit card for a major purchase, it's important that you also learn about avoiding credit card minimum payment traps and how to avoid filing a bank levy. This is a way for the credit card providers to make hundreds of thousands more than the original loans ever added up to. Interest rates that are tacked on as time goes by can often end up being more than the original monthly payment. Besides that, they can extend your payment times up to ten years longer than they should be if you stick to the small monthly payment they suggest on your bill.
The only way to get around this is to pay more than the minimum and work out the quickest way to get out from under this bill. Of course, this will require some calculations on your own in terms of how soon you want to be out of debt and what you need to pay to achieve that goal. Normally, it's wise to completely forget the small monthly payment the providers suggest and start out with a plan based on time. Use that as your base number and then determine how many dollars are required to get there.
Figuring Up a Payment Amount
An example of this would be a debt of $5,000. What would you do if you simply paid the small $25 monthly payment charge suggested by the company? That would extend your payments and the accrued interest on the balance for a possible 16 years! Who wants to pay on a bill that long or give that much profit to someone else when they could spend it on other things? Now, consider if you were to increase that payment to $100 or even $150 per month. How significantly would that shorten your payment term period?
You've just reduced that to a potential two years instead of 16. Figures like that are going to add up in anyone's financial accounting book. You've also avoided paying extreme interest rates that may change in the marketplace over time. If you consider that your credit card company has the right to increase your rates at any time, you may end up paying $20,000 for your original $5,000 loan. Not only is that destabilizing for any family's economy, it's irresponsible use of money you have worked hard for.
Using Credit Card Company Tools
Some companies have taken the time to let you figure this out on your own with the help of calculators posted online. This gives you the benefit of technology in terms of selecting a balance, a potential monthly payment and the included interest. Then, you can see exactly how long it will take you to repay the loan at that particular amount. This visual tool really helps you take note of how you're spending money each month and whether or not it's actually doing you a favor.
Because you're not in business to make the credit card companies even more money, then you probably want to learn about avoiding credit card minimum payment traps. Many clients get stuck in this process and they find it incredibly difficult to get out of as the years go by. In fact, credit card debt is one of the most common reasons why consumers file for bankruptcy. If they have lost their job or source of income, they can't go back and return many of these purchases. This leaves them in a difficult situation where they are paying and paying and paying for the same bill over and over.
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State Guides to Credit Card Laws
- North Carolina
- West Virginia