Your ABCD’s on Credit Card Debt (Ability to Balance Credit Card Debt)


Consumer debts have been broken down into different categories but the most common terms used are secured and unsecured debts. Housing loans, car loans, or any other debts that require collateral in exchange fall under the secured debt category. On the other hand, unsecured debts, as the name implies, cover those loans that is not covered by any security interest or collateral. One example of this is our credit card debt.

Statistics have shown that the average American family has a credit card debt that amounts to $5,000 and up. In the first quarter of 2011, U.S. has a total of $764.5 billion in credit card debts. We cannot totally disregard the use of credit cards since it has become part of our daily life. But how does our debt accumulate?


Headaches on Interest Rates?

If we pay the exact balance reflected in our billing statements then we are okay. The credit card is our best ally. Problem starts to occur when we only pay a part of the total amount due on our statements. Over time the interest rates and finance charges mount up. Then it will become difficult for us to pay off the entire balance.


So how do we balance our credit card debt? Here are some guidelines to consider in boosting our ability to balance any kind of debt:


1) Know your Interests… This does not mean what type of items you are interested to purchase using your card! If you have multiple plastics, it is best to know the interest rates of each card. Interests vary depending on whether what type of credit card holder you are: consumer (14.72% non-rewards; 17.27% rewards), business (14.47% non-rewards; 16.05% rewards), or student (16.67%).


2) Pay It Forward… One you have established the correct interest rate for your card, do your computations and start paying in advance. The ideal payment that most of the financial gurus advice is paying on a bi-monthly basis.


For example, if you have a $1,000 debt on your credit card that requires only 3% minimum payment or higher, doing your calculations:

Total amount due: $1,000

Interest: ($1,000 x (1×20%)/12) = $16.67

Minimum Payment Due: $30 (3% of total amount due)


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