Managing and gaining control of credit card debt(s).

        Credit cards are legal forms of loan-sharking! The credit card companies can charge any interest rate they wish, even 25% or more, for the use of their money. The credit card companies receive 1% - 5% of the cost of any purchase (which is already included in the price of the product) as a fee for any business to use their service as a method of payment for the products a consumer purchases. Any additional money received from the consumer in the form of interest payments are regarded as "extra income" for the credit card companies. Therefore, do everything you can to avoid giving the credit card companies any more "extra money".

        The most affective way to "pay less income" to the credit card companies is to minimize the amount of interest paid by utilizing a card with a low interest rate. Numerous cards offer introductory rates from 0% to 8% for 3 to 12 months. By transferring the balance from your higher interest cards to a lower interest card, while continuing to make the same monthly payment, your balance will be paid off quicker. This frees up your money to be used for anything you want. It’s extra money!

Example of savings by using a lower interest credit card:
- Assume you have a $1000 debt and you are paying $50 a month for a card offering 18% interest. The interest will be 1.5% of the balance per month (assuming no additional charges are added to the credit card).

month	payment	interest debt
=====	======	======	 =====
  1	$50.00	$ 0.00	 $950.00
  2	$50.00	$14.25	 $914.25
  3	$50.00	$13.71	 $877.96
  4	$50.00	$13.17	 $841.13
  5	$50.00	$12.62	 $803.75
  6	$50.00	$12.06	 $765.81
  7	$50.00	$11.49	 $727.30
  8	$50.00	$10.91	 $688.21
  9	$50.00	$10.32	 $648.53
 10	$50.00	$ 9.73	 $608.26
 11	$50.00	$ 9.12	 $567.38
 12	$50.00	$ 8.51	 $525.89
 13	$50.00	$ 7.89	 $483.78
 14	$50.00	$ 7.26	 $441.04
 15	$50.00	$ 6.62	 $397.66
 16	$50.00	$ 5.96	 $353.62
 17	$50.00	$ 5.30	 $308.92
 18	$50.00	$ 4.63	 $263.55
 19	$50.00	$ 3.95	 $217.50
 20	$50.00	$ 3.26	 $170.76
 21	$50.00	$ 2.56	 $123.32
 22	$50.00	$ 1.85	 $ 75.17
 23	$50.00	$ 1.13	 $ 26.30
 24	$26.69	$  .39	 $  0.00
The result is $176.69 paid for the privilege of an 18% loan on $1000 over a 24-month period.

        Now assume the same balance, but at month 6 the balance is transferred to a credit card with a 6% introductory rate for 6 months. The interest will then be .5% of the balance each month.

  5			$803.75
  6	$50.00	$ 4.02	$757.77
  7	$50.00	$ 3.79	$711.56
  8	$50.00	$ 3.56	$665.12
  9	$50.00	$ 3.33	$618.45
 10	$50.00	$ 3.09	$571.54
 11	$50.00	$ 2.86	$524.40 
        The introductory offer has expired. Transfer the balance to another card with 6% for 6 months.

 12	$50.00	$ 2.62	$477.02
 13	$50.00	$ 2.39	$429.41
 14	$50.00	$ 2.15	$381.56
 15	$50.00	$ 1.91	$333.47
 16	$50.00	$ 1.67	$285.14
 17	$50.00	$ 1.43	$236.57
        The introductory offer has again expired. Again transfer the balance to another card with 6% for 6 months.

 18	$50.00	$ 1.18	$237.75
 19	$50.00	$ 1.19	$188.94
 20	$50.00	$  .94	$139.88
 21	$50.00	$  .70	$ 90.58
 22	$50.00	$  .45	$ 41.03
 23	$41.24	$  .21	$  0.00
        The result is the balance is paid off 1 month earlier while paying only $91.24 in interest, a savings of $85.45.

        While paying off the debt, you should not use credit cards any longer. Pay for any purchases using cash or a check. If you must use a credit card, then be sure to pay off that amount along with your regular payment towards your debt when the bill is received. If not, then you will never eliminate your debt! Your debt will continue to rise, while your payments will remain the same. The result will be the onset of financial ruin.

        Also, be sure to always pay more than the minimum payment required each month. Just because you have a lower interest rate doesn't mean you should pay any less. If you make the minimum payment, then you will take so long to pay the debt, it will seem like a home mortgage. Continuing the same payment amount will increase control of your debt as shown in the previous example.

        The lower credit card interest rates are meant to entice the consumer to save money in the short-term with the intention of receiving more money from the consumer in the long-term. If you are not careful, you can loose as much and more money than you are saving. Read the application's fine print, including the asterisk notations. You will discover the low interest rate is for a short introductory term, but after the introductory term, the interest rate will increase to 18% and even higher. Also, a transfer fee may be charged to transfer the debt from your existing credit card account to the new credit card account. You won't receive the low introductory rate for the duration advertised because the low interest rate is effective when the credit card is issued to you, not when the debt is transferred. The transfer process can take several weeks to complete. Continue making payments to the old credit card(s) ensuring you won't be charged any late fees or extra interest charges.

        CAUTION: Card hopping will have a detrimental impact upon your credit rating. Refer to the Credit History/Rating section of this book for more information.

        Credit cards also offer a greater enticement to spend more money for purchases than if by paying with cash. For instance, many fast food restaurants are allowing paymet via credit card now. The result is that people are inclined to purchase more food using their credit card than if they used cash since the money spent is not visible. Therefore, use cash or a check more often instead of using a credit card. You will realize the amount you are spending more easily when you see the money in your account decrease right away.

        WARNING: Read the fine print for the credit card applications to understand the conditions for transferring balances. Some cards will allow a balance transfer with a very low or 0% rate for the life of the transferred balance, but there will be a catch. Any payments made to the credit card will be applied to the larger balance on the card which will typically be the transferred balance. Any additional purchases will be at a much higher rate and those purchases will never be paid until the transferred balance is paid. For instance: transferring $10,000 to a card offering 0% for the life of the balance, but any additional purchases will be at 12%. Any payments will be applied to the $10,000 balance while the other balance will continue to accrue interest payments. Your first though would be to stop making additional purchases on that card. Although, the card has a requirement to make two purchases each month. If not, then the interest rate on the 0% balance will jump to 18%. A way around that problem is to charge the minimum required, i.e. two one-cent transactions. A minimum finance charge will probably be applied, say fifty cents, but that is a lot less than using the card as you normally would. The resulting smaller balance will increase a lot less than if the card was used normally.




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