“Why don’t I have any money?” This is one of the most common questions I hear when I’m dealing with consumers who have a lot of credit card debt. They often attribute it to the economy, to the banking debacle, or to that pesky national debt that everyone’s been talking about. But what’s the real answer to the question? In order to answer that I’d have you look at the amount of credit card debt you have, and at how much you’re paying every month just in minimum payments.
Remember the good old days when credit card companies sent you offers for more and more credit at such great rates you felt it would be foolish to turn them down? Chances are you could afford it at the time, and were doing just fine before you got that fourth or fifth credit card. Maybe things starting getting a little tight so you used the next few card offers to reorganize, transfer balances, or just handle those unexpected expenses.
Before you knew it things really started going haywire, and you began to feel like you never had any money. You put it all into your monthly minimum payments on all those cards, and had nothing left at the end of the month. So you charged more on your credit cards–what a vicious circle!
Back in the day when you didn’t have credit cards, maybe you felt like you needed to have more stuff, or you were moving into your first apartment or house and a credit card company was happy to oblige you. You charged up your first furniture, used a credit card check for the down payment, and maybe bought some new clothes so you would look good in your new place. I’ll bet it didn’t take long to hit your credit limits on those first cards.
It’s amazing to me that you can max out a credit card in a matter of days or weeks, and then have to take years or even decades to pay it off. It’s not uncommon for people to charge their first purchases when they’re in their 20‘s, and still have to pay those same balances well into retirement. Are you still paying on the first cards you ever got? What are your monthly minimum payments on all of your cards–$100, $500, $1000 or more? What could you do with that money now if you didn’t have to pay the credit card companies? These are important questions if you want to know where all of your money is going.
It’s time to LOOK at your credit card statements–not just the due dates and minimum payments, but the nitty gritty details. You should know how much money goes to principle each month and how much you’re paying in interest. On the average credit card, over 40% of your monthly payment goes to interest (depending on your interest rate). If you’re paying $1000 in minimum payments, you’re likely paying $400 or more in interest each and every month. I don’t know about you but I could do a lot with an extra $400 per month.
So what do you do? First, stop using your credit cards. That sounds obvious, but it has to happen or you’ll never end the vicious circle. Shred them, cut them, freeze them in a bowl of water, but don’t use them. Next, write down every credit account on a spreadsheet or piece of paper. Then enter each card’s principle, interest, minimum payment, interest rate, and how long it will take to pay off the card if you continue to make only minimums. Add any other pertinent information, and do this every month. Keep track of how much they’re going down, and how much goes to principle every month.
Finally, if you really want to pay them off, find the card with the smallest balance and work on that card. Pay minimums on the rest, but make weekly payments on that one card, every week, without fail. Once that card is paid in full, cancel it and go to the next one (smallest first). The only time you should worry about interest rates is when you have zero interest and room on a card. In that case transfer all of your other balances over to that one card, pay it weekly and cancel everything else. You’ll save a fortune. Otherwise follow the formula, chip away, one by one and you’ll get there. Then you can take all the money you’re NOT spending on interest and put it in a savings account for those future, bigger purchases and pay cash!
Know what you owe and how much you’re paying. Know it like you know how to drive your car or brush your teeth. Pay down one card every week, make minimum payments on the rest, and get yourself out of debt. Make credit a thing of the past!
The Debt Lady Says, “If you know it and do it, you no longer have to worry about it!”
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Jerri Simpson, known as “The Debt Lady” (www.thedebtlady.com/), has worked in the finance industry for over 31 years, helping others conquer their financial troubles (thedebtlady.com/blog/testimonials/) and is well-known for her blogs (thedebtlady.blogspot.com).
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