Credit Card Debt Information

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Credit Card Math

Credit Card Rules

Credit Card Debt

Credit cards, we can't live with them and we can't live without them. For most of us thats how it seems. You're going through the line at the grocery store and see the person in front using a Visa, the person behind has their Master Card ready and you are going to use cash. Makes you feel out of place doesn't it. When was the last time you paid cash for gas? For a lot of us it's been a long time. The pressure to acquire and use credit cards is very intense. For sure Visa and Master Card use some of the slickest advertising to be found. The question is do you pay the entire balance off each month and almost never pay any interest? If you have the ability to do so and do it, good for you! By the way, credit card companies really don't care for customers who pay everything off on time, or in some cases, ahead of time. This is, why lending institutions are moving away from grace periods, to make sure everyone pays. Grace periods used to be a full month, over time thats been cut to around 20 days. Now some credit cards have no grace periods at all and more lenders are going that way.

Federal Reserve reports America's consumer debt has topped $2 trillion. Consumer debt is primarily for purchases of goods and services on which interest payments are not deductible, unlike the interest on mortgage payments.

If you are one of millions who does not pay off all your debt each time a credit card statement comes in don't feel bad, you are not alone. Then information on this page is intended to provide a little insight on credit card math and highlight some of the terms and conditions listed on your card holder agreement, usually found in very small print. We'll talk about the rules that can come back to haunt you. Credit cards are useful and in many cases necessary, but if one is not knowledgeable in the ways and means of credit card debt, life can be very difficult. It is very important to have a healthy respect and a little fear when using credit cards. When lending institutions play hardball they get the gloves and you don't. Not really much fun.

Credit Card Math:

• The image below was created by ccClassic our 4 in 1 credit card calculator.
• We will show an outstanding balance of $8,500 with an APR of 12.99%.
• For minimum payment we will use 2% of the outstanding balance or $10, whichever is greater.
• A number of years ago the minimum payment (%) was typically 5%, but over time that had dropped to 2% for the norm.
• Check the Cardholder Agreement to see how the minimum payment is calculated on your card. You can always check with the credit card provider as well.
• The image below shows the results for ~ Standard Payout ~ (paying the minimum) and three early payoff options. We will focus on Standard Payout for this discussion.
• Take a look at the image, then follow on below.

• Paying the minimum each month will take 380 months, or 31 years and 8 months, to pay off.
• You will pay $9,662 in interest. Amazing...
• For a detailed schedule see: Standard Payout Example
• Many credit cards carry interest rates above 20%. What's suprising is that many of us don't even realize it!
• It's very easy to get into the credit card trap and pay a heavy price. In the next section we will show you some of the credit card rules (traps) to look out for.

Credit Card Rules Gotchas:

Remember all the "You are Pre-Approved" mailings you receive in the mail, or by email, from credit card companies? Only to learn that's not really what they mean. This should be the first clue your dealing with an organization thats probably not going to go out of their way to make things clear and easy to understand. By things, we mean cardholder agreement, terms and conditions, credit card disclosures, etc. Listed below are several of the most common actions that can be taken by credit card companies to be aware of. The list is not in any particular order of importance.

• Most credit cards have different rates for how the card is used.
  1. Regular Purchases - usually the lowest rate.
  2. Balance Transfers - rate usually near regular purchases.
  3. Cash Advances - almost always the highest rate. (Cash advance rate often start at 20% or higher.)
  
  
• Payments are allocated to pay off the low APR balances first before paying off the higher balances. In other words, if you have a card with $2,000 in regular purchases at an APR of 13.99% and cash advances totaling $1,500 at 21.99%, each payment you send in will go against the regular purchases only. After the $2,000 is paid off then payments will start drawing down the $1,500 cash advance total.

In addition to the record consumer debt levels, personal bankruptcies reached an all-time high of 1.6 million in 2003.

• Credit limit can be reduced at any time and with very little notice. Even if you have been paying on time and more than minimum, your credit line can be reduced. Credit card companies routinely check your credit to see if you are still credit worthy. If they get nervous they'll reduce your credit limit in a heartbeat.

• All your APR's may increase if you fail to make a payment to any of your creditors when due, exceed your credit line, or make a payment that is not honored. Some providers are not quite as strict, but this is probably the Gotcha that hurts the most. Years ago credit card providers would cut you a lot of slack if you were late, but not today. Fall behind with one creditor and you will eventually pay the price with all of them. Rates can easily rise into the 20% and 30% range if you are not careful. Read your monthly statement carefully to see what you are paying. If you are not sure, call your credit card provider.

• Credit card providers set the rules and change the rules anytime they wish. How they communicate this information to the customers is a huge part of the problem. (Credit card providers didn't invent fine print, but they sure know how to use it.) When changes are made to your credit card account you will, in most cases, receive something from the provider. Could be a letter, a flier or something printed in the monthly statement. Take the time to read it! You don't want to go to the dentist office for dental work and find out, the hard way, the $3,000 credit line you were counting on was reduced to $300.

• Don't forget the cash advance fee, balance transfer fee, late payment fee and over-the-credit-limit fee. They can add up, but the other gotchas listed above really hurt.

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