Are you quite happy paying off the minimum amount every month on your credit card bill? You may be unaware of the actual amount you are paying off towards your debt. Most off your payment will go towards the interest owed leaving your debt and further interest charges to accumulate further.
1 in 8 people in the UK pay only the minimum payment required on their credit cards. You may think that you are keeping on top of your finances but the truth is you will be losing a lot of money by paying in this way.
It has even been suggested that paying only the minimum amount on your credit card can indeed worsen your debt rather than improve it.
The Minimum Payment Black Hole
Credit card companies have been lowering the percentage for the minimum payment in recent years. By paying a lower minimum amount on your credit card it will mean you paying off your debt in a longer time period hence the credit card company earning more interest from your debts. By taking longer to pay off your debt the more the interest will accumulate on your balance.
The government has pushed through to try and get credit card companies to clearly explain the minimum amount and add minimum payment warnings on all credit card statements to further inform card holders of what it means to be paying off only the minimum payment. There are companies that are already including this feature on their statements.
Prevention
Paying even a little more than the minimum payment each month can drastically reduce the amount of interest you will have to pay. Paying off your entire credit card bill every month means you will incur no interest charges at all as there is normally a grace period. If you can afford it this is the best way of utilizing your credit card.
There are ways in which you can alleviate the problem of large balances. Shifting your balance to a different credit card that offers an introductory 0% interest balance transfer will give you time to pay off your debt without having to pay added interest. Be aware that using this credit card to purchase goods will only add to your debt. Keep this card for the sole purpose of paying off your balance. Make sure your balance is clear before the introductory period runs out as you will again be faced with interest charges.
Credit cards are a very useful tool in today's society. Make them work to your advantage by knowing all the facts about your finances and credit.
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Frequently Asked Questions
Which avenue would be better for me?
By: ram flores | 17-09-2008
I owned a business 2 yrs ago and I lost it . I left about 65,000 in credit cards and the business 75,000. Now one card co. is suing me for 9,000 and the business owner for 95,000 which I know is inflated. I have 2 rental properties that I could sell for the bal. owed. The question is which would be better for me , go through the lawsuits which I have no money to defend myself, and they might get a jugdement against me and force me to sell my rental properties or can I file chapter 7 for about 1,300 dollars. I have been unemployeed for 5 months.
Which avenue would be better for me?
By: ram flores | 17-09-2008
I owned a business 2 yrs ago and I lost it . I left about 65,000 in credit cards and the business 75,000. Now one card co. is suing me for 9,000 and the business owner for 95,000 which I know is inflated. I have 2 rental properties that I could sell for the bal. owed. The question is which would be better for me , go through the lawsuits which I have no money to defend myself, and they might get a jugdement against me and force me to sell my rental properties or can I file chapter 7 for about 1,300 dollars. I have been unemployeed for 5 months.
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