Let’s suppose you’ve done some balance transfers and have some credit line accounts and have made some mistakes and now find yourself $50,000 in debt.
Is there a fast way to pay this down?
Not if you continue paying just the minimum amounts on your revolving credit card
Here’s the math
Suppose you make a $1,500 minimum payment this month. This would reduce your principal amount by $1,500 to $49,500. You next month’s payment would then go to $1,485. If you make a year’s worth of these minimum payments, your principal would be down to $44,319.01 and your minimum payment would decrease to $1,342.89. By the time you reached year five, you would have a minimum payment of $829.01 and by the year 10 this would have dropped to $453.66. If you continued to make just the minimum payment, based on the formula of interest due, plus 1% of the balance, it would take more than 42 years to pay of the entire $50,000.
A better solution
A better answer than to make the smaller minimum payments as they continue to drop is to keep paying $1,500 a month. This would get the $50,000 paid off in a bit less than five years and the total payoff would be just $83,220.87, which would be a savings of $16,115.17.
How to save money
If you actually had $50,000 in credit card debt and wanted to pay it off in five years, the question would be–how can you save money during this period of time. It may seem difficult, if not impossible. Every time you get a promotion, a tax refund or a bonus of any kind, just split it 50/50 between your savings account and you. Since this is money you don’t have yet, you won’t really miss it. The thing is, it’s really important to have an emergency savings account even if you’re paying down debt. Your goal should be to have at least six months’ worth of living expenses saved.
This may seem like a lot but once you start, it will probably take on its own life. You may have to make some small sacrifices at first such as skipping a few meals eating out to get started but the sooner you do, the better you will undoubtedly feel.
If you don’t have a budget, create one
You’ll find it a lot easier to build six months’ worth of living expenses if you have a budget. To do this, you’ll need to track your expenses for at least a month. At the end of the thirty days, you can divide your expenses into categories so that you can see how much you’re spending on groceries, entertainment, clothing and so forth. Once you know this, you should be able to determine where you can cut costs. For example, just not eating out several times a week could save you as much as $160 a month or more. You could also cut your grocery bill by finding and using coupons and just shopping a bit smarter.
A better way to handle credit card debt
You could get that $50,000 in credit card debt paid off much faster through a program of debt settlement. Our debt counselors can work with your creditors to get your debts reduced – probably to just a fraction of what you owe – and have you completely debt-free in 24 to 48 months. Let us help you get rid of that dreadful debt and live a better, less stressful life. Fill out the form for a free quote or call us today for immediate help.