Many people simply look at whether or not they can afford their monthly payment when looking at their credit cards. They don't sit and figure out how long it will take to pay them off and how much they are costing them over the long run.
For example, $2,000 doesn't seem like a huge balance on a credit card. And at an 18% interest rate, your payment is only around $40 a month. Sounds pretty affordable right now, doesn't it?
Well, if you really look at the number, approximately $30 of your payment goes towards interest. Only $10 is paid towards the $2,000 balance each month.
If you are only paying the minimum balance each month, it will take you over 30 years to pay off that $2000. Thirty years! That is amazing. You will have paid back $5,000 in interest in that time. So your $2,000 credit card bill will really cost you $7,000 in the long run.
Makes those hamburgers you charged on your card look a lot different now.
Credit cards are a really costly form of credit. If you must have one, paying off the balance in full each month is a necessity. This will help you avoid any interest charges. If you can't pay it off in one month, you need to be making every effort in the world to get it paid off as soon as possible. Can you imagine having it hanging around for the next 30 years? And your monthly payment will only reduce it slightly each year. What a waste of money.
You need to understand what your credit is really costing you. Credit card companies make a killing. They want you to get further and further in debt. They even want you to miss a payment so that they can hit you with a late fee and increase your interest rate to the default rate, which is often around 28%. This would probably extend that payback period for the rest of your life.
Find an online calculator and see how long it will take you to pay off your current credit cards by using the minimum payment method. You will probably be shocked. My family has no credit card debt at all. But we did. And we plugged the numbers into the calculator and it said that it was over a lifetime. It actually said that. So we got rid of that debt before it cost us one more cent in interest and time spent stressing.
It is worth the sacrifice to pay off your credit card debt. You have more money, less stress and an easier financial plan to manage. Take the time to find out how much your debt is really costing you. And pay it off.
Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!