There are two types of consumers in the world – those who buy what they can afford, and those who live off credit. Sometimes it’s easy to justify racking up debt, especially when the item you want is deeply discounted. You only have to pay the minimum monthly payment, right? What most people don’t realize is that that deeply discounted item isn’t really deeply discounted when you consider the interest you’ll have pay on it.
Take, for example, the flat screen TV my friend bought last Boxing Day. He was totally maxed out from Christmas shopping, but really wanted to get the TV because the price was right. Without hesitation, he swiped his Future Shop card (at a rate of 29.99%), asked for the 6-month interest free promotion and walked out with a brand new TV. He had 6 months to pay it. No problem.
Sometime in January, his first bill arrived. Since he had received the 6-month interest free promotion, he wasn’t required to make a payment, so he didn’t. The next month passed much the same, as did the few that followed. He considered himself fortunate, as he tried to pay off the other holiday debts he’d amassed instead.
At the end of the 6-month period, the bill arrived with a minimum payment. It was only $10. He paid it. The next month, the $500 TV bill asked for a minimum payment of $18.05. No problem; that was the price of a lunch out, after all. When the bill came the following month it was even lower – $17.89, to be exact. Again, my friend paid the bill and waited for the next month’s one to arrive. Why he didn’t bother to calculate the total cost of the TV, I’ll never know. All he focused on at the time was the savings. Here’s what he should have recognized, though – that TV was going to cost him a total of $1,083! When you think about it, he didn’t really save anything at all.
My friend isn’t alone. Many, many people purchase now with the idea that they’ll pay for it later. And boy do they pay for it later. If you, like my friend, have outstanding credit card debt, here are 5 tips for paying it off quicker.
1. Don’t avoid your debt, deal with it head on. Knowing what you owe is the first step to managing debt. When debt gets out of control, many of us tend to ignore it. Make a list and prioritize. Always pay the debt with the highest interest rate first.
2. Hide your cards. Until they’re paid off, put the cards away. Easier said than done? Ask someone you trust to hold on to them.
3. Think twice when shopping. Do you really need that item? Or do you just want it? There is a difference between needs and wants. Be conscious of yours.
4. If possible, negotiate a lower rate. If you’re approved for a card with a lower rate, you may be eligible for debt transfer. Sometimes there’s a fee, though, and that fee can outweigh your savings. Always look before you leap.
5. Devise a payment plan. The best course of action is to come up with a plan and stick to it. If you’re still not convinced that you need to pay more than the minimum payment, use a minimum payment calculator to see what the true cost of your item is.
See how to improve your credit, where to obtain your credit report for free and how your credit score is calculated. For more information on how to obtain a mortgage with bad credit, see our bad credit mortgage financing page. We also assist clients looking to obtain a mortgage after bankruptcy
