Do you constantly wonder why you can’t whittle down that credit card balance? You are certainly not alone. Thirty-six percent of workers in the US say they are living paycheck to paycheck. (chicagotribune.com, September 26, 2013)
Primerica can work with you to create a strategy that helps you spend your money effectively and free yourself from credit card debt. Part of liberating yourself is to understand how money works. Find a Primerica representative in your area who can help you right here.
Credit Cards – A Mixed Bag
Credit cards have been a wonderful development of the past 50 years – but many people have become addicted to their convenience. While credit card usage fell from its 2008 high of just over $1 trillion at the beginning of the Great Recession, consumers were at it again by September 2013 – with a seasonally adjusted annual revolving credit balance of $850 billion. (wsj.com, September 9, 2013)
Only making the minimum payment on your credit cards each month won’t do much to chip away at your balance. Credit card debt is not like a car or home loan where you make predefined, amortized payments that are scheduled to pay off your loan at a specified date. Credit card debt is revolving debt -- it can have a variable interest rate and payments are based upon a percentage of the balance.
This chart helps illustrate the difference:
The Revolving Debt Trap
|Revolving Debt* (credit card)||Fixed Debt** (installment loan)|
|Interest rate (APR)||15%||15%|
|Monthly payment amount||$525.00/month (revolving)*||$525.00/month (fixed)*|
|Years to payoff||15 years||3 years|
|That's a difference of:
$4,500 or 12 Years to Debt Freedom!
* Assumes revolving payment (minimum) of 3.5% of the remaining balance or $20, whichever is greater. First month's payment is shown and term assumes continued payment of minimum amount. No additional debt incurred and payments decrease over time period.
** Assumes payment of 3.5% of initial loan amount, no additional debt incurred and payment amount remains fixed throughout term of loan. The amounts borrowed, amounts of interest paid and total costs illustrated above were rounded to the nearest $100. This illustration is hypothetical only. Each debt situation will vary.