The Reason You Have a Credit Card Debt Problem
Published by admin on March 17, 2010
The Reason You Have a Credit Card Debt Problem
The reason that so many people find credit card debt difficult to pay off is that the system is set up to make it difficult for them to pay off their debts. It is in the credit card companies best interest to keep you in debt and making interest payments for as long as they possibly can. The key to getting your credit card debts paid off is to change the system so that it works in your favor; this is easier to do than you might believe.
As you are probably well aware credit card companies make their money from the interest they charge for allowing you to use their cards, and they make a lot of money. Not only is credit card interest extremely high but most people take forever to pay it off. It is not at all uncommon to spend your entire adult life in debt to the credit card companies. The credit card companies are quite happy with this system, it earns them huge profits, and unfortunately it’s not really doing you any good.
Determining what the minimum payment on a credit card bill should be is something that the credit card companies put a lot of effort into deciding. There is a lot of science that goes into it, they have to make sure that they will eventually get their money while at the same time keeping you in debt for as long as possible. This is how they maximize the interest they earn, and why most people find it almost impossible to get out of debt. When you make the minimum payment the vast majority of that money goes towards interest, very little goes to paying down the principal. Common sense should tell you that it will take forever to pay off your debts at that rate, even assuming you aren’t adding to your debts, which probably isn’t true for most people.
The only way that you are going to get out of credit card debt is to pay substantially more than the minimum payment each month. The goal should be to pay at least twice the minimum, more would be better. This will reduce the principal much faster and reduce the interest you have to pay. As an added bonus you will be able to watch you owe decrease at a constantly accelerating rate, every month you reduce the principal less interest gets charged, if you make the same payment next month you are taking an even bigger bite out of the principal, and so on.
A guaranteed way to get into trouble with credit card debt is to make the minimum payments each month. There is no way that you are going to pay off your bills by paying the minimum, and that interest will just keep increasing the amount that you owe. Just because the credit card companies are happy to let you pay the minimum doesn’t mean it’s a good idea, you should always strive to pay more than the minimum each month.
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