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Do you have credit card debt that just never seems to get paid off? Are high balances killing your credit score?
Your not alone, The 84 million American households have racked up a staggering $750.9 billion dollars in credit card debt.
Here I will teach you how to dig yourself out of credit card debt and stay out.
The first thing you have to understand before you can get out of debt with the credit card companies is how they make
their money. While annual fees, online and telephone payment fees, over-limit charges etc, bring in a pretty penny.
Interest is the credit card companies bread and butter. That is why most credit card companies only require you to pay
2% of your balance monthly. This helps them collect interest on a $5,000 dollar balance for as much as 30 years.
Lets say you owe $5,000 in credit card debt at 18% interest. If you only pay the minimum 2% due you are paying
a total of $100 towards that debt while it accrued $75 in interest. That means that only $25 went to your
balance. At that rate it would take almost 17 years to pay off the balance!
Now that you understand why you can't get out from under your credit card debt, I will show you how to pay it
off. The first thing that you will want to do if possible is transfer your balances to your card with the lowest
interest rate. Cut up the other cards but, don't close them yet. Your debt to income ratio is an average
of your total available and used credit. If you close accounts you will have the same amount of used credit and less
available credit. You may also want to consider shopping around for a card with better terms if you have the credit
for it. Be careful not to accept one that has introductory terms. Many cards will start off with an attractive low rate
but then shoot up 6 months later. Also, remember not to make to many inquiries as this lowers your credit score.
Next you will need to figure out how much your cards interest is costing you. This is achieved by first finding
out if your credit card uses a monthly or daily periodic interest rate. Remember your interest rate is an annual
rate; you pay a portion of that rate each month. Example: Lets say you have a monthly periodic rate
at 18% that means you would divide 18 by 12 to get 1.5% a month in interest. If you have a daily rate you would
divide 18 by the number of days in the month. Now, Lets say that same card has a $ 5,000 balance.
To figure out how much you are paying in interest you would multiply 5,000 x .015 and get $75.00 That is how
much you are paying monthly in interest alone!
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