Credit card debt can be like the fog. You hardly notice it until you suddenly realize it’s enveloped you. If you’re wandering around in a fog of debt, don’t despair. The Federal Trade Commission’s website has some good information about paying down credit card debt. What it basically boils down to is:
• Always make more than the minimum payment
• Pay cash as much as possible
• Keep credit card usage under control
• Review your statements
• Keep your credit cards secure
Let’s take these one at a time with some real-world examples.
Why you need to make more than just your minimum payments
For the sake of an example let’s assume that you have a balance of $1500 on a credit card that has a 19% interest rate. If you pay just the minimum each month and it’s 4% of your outstanding balance, you’ll begin by paying $60. At this rate, you will have 106 payments and it will require 26 years to pay off your entire balance. And you will end up paying more than $889 in extra interest. This assumes that you charge nothing else on that credit card and that you are hit with no fees such as for late payments.
Here’s another example of why you need to make more than your minimum monthly payments. In this case, let’s say say that your minimum payment is 2.5% of your balance owed. Your initial payment will be $37.58 and it will be almost 35 years before you get that $1500 paid off. Plus, you will pay $2138 in interest alone.
Pay cash is much as possible
The best thing you can do to keep credit card debt under control is hide those credit cards in a drawer or have a relative hold on to them and pay cash for as many of your purchases as possible. When you do use one of your cards, make sure that you can pay off whatever you’ve charged at the end of the month. Where people generally get in trouble is when they start carrying their balances forward from month to month.
Keep your credit card usage under control
When you shop with a credit card, whether it’s in person or online, it’s very easy to buy things. All you need to do is have the clerk swipe your credit card or give the company its number and presto! You’ve made a purchase. But it’s critical that you record those purchases. If you start making impulse or incidental purchases, your credit card debt can spin out of control before you’re even aware of it. Be sure to keep good records of all your spending.
Also, be sure to review your credit card statements every month. The credit card issuers are human and can make mistakes. If you find an error on one of your cards you need to report this immediately to the credit card company. This could be a mistake or you could be the victim of identity theft. Your statement should have information as to how to dispute a charge or charges. This should include the company’s telephone number. When you make purchases online, be sure to keep printouts with details of the transaction.
Keep your credit card secure
Identity theft is the fastest growing crime in America. We read a report recently that in 2011, there were 11.1 million Americans that were the victims of identity theft and the number has only gone up since then. Three states, Florida, Georgia and California, have the highest per capita rate for reporting identity theft. And 50% of all identity thefts involve utility, phone, bank and employment fraud.
You can protect yourself from identity theft and here are some precautions you should always take.
• Never sign a blank charge slip.
• Never lend your card to anyone
• Never write your account number on a postcard or the outside of an evelope.
• Be careful about disclosing your account number over the phone unless you are sure the person you’re dealing with works for a reputable company.
• Carry only the cards you expect to use to minimize the damage of a potential loss or theft.
• Never fail to report stolen or lost credit cards, debit cards or charge cards to the card company as soon as you can. Then be sure to follow up by writing a letter to the card issuer with the number of your account, the date you first noticed that the card was missing and the date you reported the loss.
If you’d like to learn more tips about credit card security, watch this video.