Debt Free Living

Start Putting An End To Credit Card Debt Now
 by: Michael Redbourn

When you've done that, I want you to divide them into three separate categories. The first one is for your fixed monthly payments, which will include things such as your mortgage or rent, a car payment, and maybe your phone and TV payments. The second category is for monthly payments that vary, and it should include such things as, groceries, gas, electricity, vehicle maintenance, and perhaps home repair. The third category should contain items over which you hopefully have much more control, like, eating out, entertainment, impulse shopping, and everything else that doesn't fit into either of the first two categories.

Now make a list of any income that you have regardless of whether it's salary, welfare, stocks and shares, or a rental property etc.

You've more than likely guessed the next step, which is to compare your total expenses, to your total net income.

If your expenses are more than your income, then you'll obviously have to look at the third category and decide how to cut back on some of the items that are in it.

If after reducing the amounts in the third category, your expenses still exceed your income then it's high time to consider making serious changes to your lifestyle, because if you don't then you're going to get deeper into debt every month, and no amount of reading or effort will help you until you make those changes.

With any luck your income is more than your expenditure, and if it is then we can begin to reduce your credit card debt, and the first real decision you'll have to make, is how much more you're ready to add your monthly credit card payments.

The bigger the payments the better, and here's why.

If your balance is $10,000 and you pay the present minimum repayment of $200 per month, then based on an APR of 15% it will take you 6 years and 7 months to pay off the card, and you'll have paid $5,791.21 in interest. If you'd paid $300 per month instead, it would have taken three years and eight months to pay off, and you'd have paid $3,017.07 in interest.

If you have several credit cards, which is likely, then the next step is to consolidate all your credit cards, so that you'll only have one or two of them to make payments on, and those payments will only be on cards that have the lowest interest rates. 

Deciding which credit cards to keep and which ones to get rid of is not as simple as you might think because the differences between APR and EAR make figuring out the actual interest rate fairly complicated.

If we assume a stable balance, and all other conditions remain the same, an APR of 12.99 percent over the course of a year's worth of compound interest is the same as an EAR of 13.79 percent which might not seem like a lot, but if your balance is a large one, or if the repayment time will be lengthy, then the difference will be significant.

It's easy to find a 'Credit Card Repayment Calculator' on the web, and if some of your card companies use EAR and others use APR, then simply use one of the calculators to figure out which cards are costing you more, and don't forget to take into account the annual cost of the card.

It's almost certain that you receive offers from rival credit card companies several times a year that ask you to transfer your balances from other cards to them, and they almost always offer you several months of a low or even zero percent interest, and it's very important that you take advantage of these offers. The transfer process is simple, and it can be done with checks that are supplied by the company, or online, and you should do it every time the period of low or free interest is close to expiring.

At the time of writing this article, lots of credit card companies are doubling the minimum monthly payments, and while it will make it difficult for many people to make them, it will of course benefit them, if it doesn't completely ruin their lives first. The problem with the credit card companies enforcing the change, is that it will force people to make much higher payments than they'd anticipated, which is a far cry from the planned method that is suggested here, and one which is still entirely valid.

So if you're really determined to get rid of your credit card debt, create your budget; cut down on the number of cards that you have to the lowest number that's possible; decide how much you're going to add to the minimum monthly payments; and then smile as you watch your balances come down quickly.

About The Author