You know that little box on your credit card bill that tells you how long it will take to pay off the balance if you only pay the minimum due? Does it scare you? It should. You may be tired of hearing it, but I can’t tell you this enough. Pay more than the minimum.
Here are a few things you should know:
Let’s say you have a $10,000 balance at 12% interest and the minimum payment is $200 per month. You should know that if you stop using this credit card, and that means no more charging on this account, it will take you 70 months – almost 6 years – to pay off the balance and will cost you over $9,000 in interest.
Now think about this: Was whatever you purchased worth that additional cost?
Enough about that. You have debt. What are your options?
- You could pay it off with your savings (I am not talking about retirement savings). But, chances are if you had the money in savings, you wouldn’t have made the charges.
- You could figure out a way to get more income. Get a part-time job, turn a hobby into some extra cash, or sell items that you don’t need.
- You could reduce your expenses. Mow your own lawn, cancel cable TV, stop eating out, etc. (Read my upcoming Quick Tips article on July 22nd for more information.)
Paying the balance off as quickly as possible is in your best interest. Let’s use my example above:
- If you could increase your payments by $50, you would save 18 months of payments.
- Increase it even more to $100 extra per month and you would cut the time to 41 months.
- Pay $200 each month (that’s double the minimum) and you could have the balance paid in 29 months and only pay about $1,600 in interest versus the original $9,000.
Paying your credit card balances off as quickly as possible is a great thing. Make your new budget plan and get started.