How Much is Credit Card Debt Costing You?
Content Provided By Katie Bryan Communications Manager, America Saves and Rosemary Thompson, Foothills United Way PIE Program Coordinator
America Saves, managed by the Consumer Federation of America (CFA), is a non-profit research‐based social marketing campaign that seeks to motivate, support, and encourage low- to moderate-income households to save money and build wealth. Learn more at americasaves.org.
The Personal Investment Enterprise Program, a partnership between Foothills United Way and Community Action Programs, provides tools that empower low-income individuals and families to save and build assets to strengthen their economic stability. To learn more about the program visit www.bouldercountypie.org. The first step in applying to the program is to attend an orientation meeting with Nino Gallo at Community Action Programs at Boulder County. Nino may be reached at 303-441-3998 or at [email protected].
Credit card debt – it’s something that hangs over many Americans. Borrowing more money than you can afford is costly in many ways. Beyond the interest and fees, it can lower your credit score and affect interest rates available to you on consumer and mortgage loans. People with lots of debt often say they lack peace of mind. They worry about paying off debts and making ends meet. The stress of these worries affects their family life, work performance, and other areas of their lives. According to the Federal Reserve, in April 2013 the average credit cards debt equaled $3,364 per U.S. adult. This assumes that EVERY adult has a credit card and that those cards carry debt. But not all adults own a credit card. Young Americans are among those ditching their credit cards and not all households with credit cards carry a balance each month. The only way to reduce credit card debt is to make payments each and every month. To reduce this even faster you should pay more than the minimum payment each month.
Save Nearly $4,000 by Paying More than the Minimum Balance
By only paying the minimum monthly balance, you are guaranteed to extend the amount of time it will take you to pay off your credit card and increase the amount you will pay. Take this example:
|
Total Credit Card Debt |
Monthly Payment |
Years to Pay Off |
Total Cost |
|
$3,364 (at 14.96% Interest) |
$67.28 (min. payment) |
19 Years 5 Months |
$7,618.63 |
|
$3,364 (at 14.96% Interest) |
$87.28 (min. payment +$20) |
4 Years 4 Months |
$4,533.67 |
|
$3,364 (at 14.96% Interest) |
$107.28 (min. payment +$40) |
3 Years 4 Months |
$4,225.11 |
|
$3,364 (at 14.96% Interest) |
$167.28 (min. payment +$100) |
1 Year 1 Month |
$3,841.40 |
In this example, finding an extra $100 a month to apply to credit card payments reduces the time it will take you to pay off this debt from over 19 years to just over 1 year AND saves you nearly $4,000.
Use this great free calculator to see how long it will take you to pay off your credit card debt. You can see how long it will take if you only make the minimum payment, how much you will save by paying more, and you can find out how much you will need to pay each month to be debt free in a time period you designate.Are you in Trouble?
If you answer “yes” to any of the following questions, then you probably need to get your debts under better control:
1. Can you only afford to make minimum payments on your credit cards?
2. Do you worry about finding the money to make monthly car payments?
3. Do you borrow money to pay off old debts?
4. Have you used a home equity loan to refinance credit card debts, then run up new revolving balances on your cards?
The good news is that there is hope. With planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth.
How to reduce your Debts
The first step in getting out of debt is to stop borrowing. To do that, you have to stop spending more than you earn. So, make a budget and cut out any expenses you can. It may help to cut up your credit cards or lock them away in a safe place.
Set a Goal.
- Example: I want to pay down $1,000 in debt in one year.
Make a Plan.
- Figure out the most you can afford to pay each month to reduce your debts, then make those payments without fail. See if you can automatically pay your bills each month to ensure you make your payments on time.
Ideas for saving:
TIP: If you have debts on more than one credit card, either pay off the card with the highest interest rate first and work your way down to the card with the lowest rate, or pay off the smallest loan first and work your way up to the largest. Once you’ve paid off your debts, don’t give in to the temptation to start over-spending again. Instead, take the money you were paying each month on your debts and begin to save it. That will give you a financial cushion the next time an emergency strikes.
Where to get help
In most communities, there are agencies that can help you manage your debts.
Consumer Credit Counseling Services
The most helpful and most widely available are non-profit Consumer Credit Counseling Services (CCCS). CCCS counselors can work with you privately to help you develop a budget, figure out your options, and negotiate with creditors to repay your debts. Call 1-800-388-2227 to locate the office nearest you.
Some national credit counseling non-profits, who provide advice online or over the phone, can also be helpful. However, others charge high fees for little service, so be sure to shop carefully. In many communities, Cooperative Extension offices offer workshops, home-study courses, and other services to help people manage their money, including their debts. Cooperative Extension offices are listed in the blue pages of the phone book under county government.
Other Resources:
Action Plan: Dig Yourself Out of Debt
Gen Y Debt article and debt ratios
Debt to Income Ratio Calculator
America Saves Pledge make a commitment to yourself to save and receive emails and/or text messages to keep you motivated.
