Ways to Save - Discredit Your Credit Cards

Credit cards are like con artists. You often don’t realize how much they are costing you. In the long run, annual fees and high interest rates multiply the cost of every purchase you make on credit. Consider this:

Example:

You buy a washer & dryer and a DVD Player for $3,000 on credit with an annual percentage rate (APR) of 19.8 % (or higher, with some store-issued cards). Your monthly minimum payment is 2% of your balance or $15, whichever is greater, and you make no new purchases on that line of credit until you’ve paid off the three thousand. You will pay more than $10,000 in interest for that washer & dryer and DVD Player, which will take you 39 years to pay off, thanks to compound interest. That’s more than $13,000 for three appliances that won’t even be around by the time you own them!

To pay off your credit cards, divide the balance by the payment. The one with the lowest ratio pay off first. Add that payment to the second lowest account. Keep snow balling your liquidated payments to the next debt. DON’T-DON’T-DON’T spend the payment $$$$ when the debt is liquidated. Keep rolling it into the next debt.

To pay off a credit card in one year, divide your outstanding balance by 12 to arrive at your monthly payment. Add the finance charge to your check total each month, and a year from now that credit card balance will be history. To do it in two years, simply divide your balance by 24 and add the finance charge to each month’s payment.

Meanwhile... Call the 800#’s on back of your credit cards and ask for lower APR’s. Tell them you know there are lower ones available, because you get offers in the mail all the time. If they don’t want to lose you as a customer, they will probably comply.

If the operator says there is nothing he or she can do at this time, ask if they have a Resolution Department. Write a letter stating your financial bind and that you are trying to get out of debt without ruining your credit and would like help in lowering the interest rate and reworking your monthly payments.

After you’ve recovered from personal recession and regained your financial balance, think twice about re-acquiring credit cards. If you must use one occasionally, then get the best deal you can on your bank card.

As stated earlier, many homeowners choose home equity loans to consolidate their debts into one payment at a lower percentage rate, using the equity in their home as collateral (and taking advantage of the tax deduction on interest).

Reality Check

If you must use a credit card, make it a bank card, not a store card. Store cards charge higher interest rates. Look for a lower APR and no annual fee. Call your credit card company and ask. Cite lower rates you see in ads or receive by direct mail. The bank may play games with you, but most likely they will reduce your interest rate and remove the annual fee, rather than lose you as a customer. (Note that most low APR’s are introductory and go up after a three-or-six month period, and they adjust to very obscene rates. READ the fine print on every credit card application.)



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