Why Your Credit Payment Plan May Never Clear Your Debts
Do you lay in bed at night worrying about your credit card debts? You're not alone. The global economy appears to be showing signs of turning the corner and, armed with a false sense of security, many of us have resumed our old habits and started to splash out on the plastic again. But I know you're sensible: you have a plan. In a few years time your formidable willpower will have given you the strength to crush your debts, right?
I'm sorry to say but your plans might not be as watertight as you think. Here are four reasons why you might be in debt for the rest of your life.
You're Not Paying Enough
I'll start with the most obvious reason why some of you simply can't clear your debts: you simply can't or won't pay enough to make an impact. You should know what your monthly payments are. If you don't you're probably incurring regular penalty fees. Let's assume you have $5,000 outstanding on your credit cards and each month you have to repay about $150. The odds are that, like many other borrowers, you'll pay the minimum amount necessary. After all, when you hit that big payday you're going to clear it all in one go, right? Well let's say that big day never comes; in 18 years you'll finally make your last payment BUT only if you don't spend any more money on your card.
If you want to work out how long it might take you to pay off your current credit card debt then give our credit card re-payment calculators a try.
Buying Now, Paying Later Is So Much Easier
Every year, Apple announces a range of shiny, must-have gadgets at the WWDC. But they come at a price. Likewise, competitors such as Google and Microsoft have their own, equally expensive, toys designed to convince us to open our wallets. But what happens when we're a bit short of cash? A new laptop that costs $1200 might take several months to save up for. But why wait? Simply whip out the plastic and in a matter of minutes you'll be the envy of your friends and colleagues. I have to admit that it certainly feels good - until next month's bill lands in your mailbox. Fact: one of the biggest causes of unmanageable credit card debt is our inability to save for what we want.
Balance Transfers Are Time Limited
How often do you receive notification of a great new balance transfer rate? Every week? Every month? Doesn't it feel great to know that you simply shift your money around to a new lender and pay 0% for 18 months? But, in the vast majority of cases, there's a price to pay: a one time transfer fee. I can already hear what you're about to say - it's only 3%. But, let's say you have $10,000 outstanding on your card. When you transfer your debt you pay $300 for a 12 month 0% interest rate offer. If you're paying $100 on a monthly basis the you've just added an extra three months to the time it's going to take to clear your debts. Now multiply this by an average of ten cards over the life of your debt and the bill could rise as high as £3,000 - just for the privilege of moving your money around.
Some Lenders Don't Like Repeat Custom
So, you've managed to find or arrange a great deal on balance transfers: well done. I mean that with complete sincerity. Finding an offer that fits your specific needs and budget can be difficult. That said, most lenders will find a way to hook you with what looks like a fantastic deal. But have you considered what happens when you transfer your balance and close your old card? It would appear that some financial organisations take your account closure as some kind of snub. Don't believe me? Check out the small print next time you apply for a new card. You may well discover that, as a former customer, you're not eligible for the advertised offer.
Sometimes it's worth holding on to an existing card to see if you're offered a new, more attractive rate in the future.
You 're Easily Led
No, I don't mean you're an easy target for a confidence trickster. What I'm asking is, "how well do you really know yourself?" If you lack the awareness to understand your basic personality traits then there's a good chance you're spending far too much money. Many of us live for the moment and, to be honest, there's nothing wrong with that. But, sadly for your finances, it's easy to give in to your impulses. Failure to understand that you've been hooked by a clever marketing scheme is a surefire way to keep yourself in debt for the rest of your days.
Don't panic! Your impulses are one of the survival mechanisms that nature put in place to stop you being eaten by sabre toothed tigers. But, resisting the urge to buy when you have no money will save you a lot of pain.
Written by James Redden
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Last update: 18 September 2013
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