Many people are overwhelmed with credit card debts because they have not devised a plan to manage/eliminate that debt. Many people have a problem with a $5,000 credit card debt looming over their head, yet they do not bat an eye over a $20,000 car loan with a bank. The reason is because the car loan is considered an obligation to repay the bank for the money borrowed using a predefined amount of money paid monthly over a predefined amount of time. A credit card debt is perceived as a burden without a payment plan because the credit card companies want to gouge you for as much money as they can. If a credit card debt is perceived/managed like a car loan then the credit card debt will not be so overwhelming.

     Consider the following example: A $20,000 car loan at 8% for 5 years will result in a monthly payment of about $405. The bank will give you a coupon book for the required monthly payment that does not indicate the remaining loan balance after each monthly payment. You proceed to pay the bank without question using the payment plan they devised. If you do not make the payment, you know you can get in trouble that can lead to the possibility of loosing your car. Credit card companies will not provide such a payment plan and will not have a problem with you as long as you pay the small minimum payment each month (a luxury not available with a car loan). The payment plan is up to you to devise. Consider a plan of paying the $5,000 credit card debt by revolving the debt among cards offering introductory rates of 5.9% for one year will result in monthly payments of about $430. If that amount is too much then consider paying the debt in 18 months at about $290 or 24 months at about $221. You have then created a manageable plan to eliminate your credit card debt.

     Always remember though, the longer you take to repay the loan, the more interest paid and the more money wasted.


Return to Debt Management Topics.