Wednesday, June 25, 2008

Credit Card Payments = Death of a Thousand Cuts.

It blows my mind to hear how much money people pay out each month on their credit card bills. Though out the day I hear of people who make as much as $900 a month payments out to their various credit cards. ($900 a month is a mortgage payment on a small house!) How much credit card debt does it take to make your total monthly payments $900? Typically anywhere from $30k to $50k. How does someone get into that much credit card debt? The stories are endless. Some people fall on hard times while others simply spend what they want and worry about it later.







The kicker is that usually people with such high credit card balances are actually paying significantly more for the original item then what they ever thought because of the interest they are sitting on with these cards.







...And I'm not one to pass judgement. I got a phone call from Chase right after I got out of college offering me a zero percent interest credit card for a year. I signed up then and there. I spent it on the stuff that I needed to live. A new mattress, some dishes, shower curtain...oh and several nights out at a bar in Cincy called the Pavillion. Well I was one day late on a payment and suddenly that pretty O% went up to 19.9% Over night my $1800 balance was eating my money for around $178 a month going to nothing! (heck, it might have even been more!)







Pull out $180 out of the ATM some time and then throw it out the window. That's what I was essentially doing with my credit card debt.







But the credit card companies make it a slow death of a thousand cuts. You don't feel it. You pay the minimum payment and hope that the balance will go down. Next month you look and the statement and all that money you paid just covered their interest or their fee for using the card. It's a lot more painful to imagine a cold hard stack of 20's in your hand getting handed over to someone.....FOR NOTHING! (Reality check, I can hand over money to the waiter at the end of a good meal, at least I'm full for a few hours!)



The bottom line is that individuals need to take a serious look at their credit card statements and ask themselves three easy questions.



1. How much am I paying out total each month on my credit card?



2. How much of the money I am paying out is actually going to the principle? (or how much is not going to the principle?)



3. Where am I going to be a year from now if I keep paying the credit cards at the rate I am?





The answers to these questions should open your eyes to where you really stand with your credit card debt.

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