Americus Times-Recorder, Americus, Georgia

Local Columnists

January 28, 2013

Mitzi Bacon: Managing credit card debt

AMERICUS — In keeping with January’s Financial Awareness Month theme, I’ve saved the worst subject for last:  Credit card debt. According to Michael Rupured, UGA Consumer Economics specialist, in order to get out of credit card debt the first thing you need to do is to pay more than the minimum on monthly credit card payments. This is good advice.

If you were to charge $2,500 on a credit card with a 21 percent APR and only pay the minimum payment of $20 each month, it will take you 40 years, eight months to pay off the debt and you will end up paying $11,894 in interest! You will pay a grand total of $14,394 for your original $2,500 charge! Was it worth it?

If you carry a balance, pay every dollar you can toward your credit cards each month to get out of debt as fast as you can.  When you are out of debt, you can use the money you needed for credit card payments to save for the future instead of paying for things you did in the past. Give up a few meals out, a movie, snacks and other little things and devote the money you save towards reducing your time in debt.

If you only have one credit card, plow every extra penny you can toward paying it off. Stop using the card. You may even want to take the card out of your wallet and store in a safe place -- an especially good idea if you are prone to overspending. Once you are out of debt you can enjoy shopping or eating out free from the guilt that often comes with credit card purchases. The larger the payment you make, the sooner you can be debt and guilt free.

If you carry a balance on multiple cards, take a look at your total credit card debt. Write down the amount you owe, the minimum payment, and the interest rate for each of your credit cards. First, look at the total monthly minimum payment. Take a hard look at your spending to find ways to add as much as you can to the amount you can pay towards your credit cards each month. Identify your credit card with the highest interest rate and apply all your extra dollars to this payment, making just the minimum payment for all other credit cards. This simple strategy helps you get faster results from those extra dollars. Once you pay off your highest rate card, use the same strategy to pay off the remaining cards until they are all paid in full.  Making only the minimum payment on credit cards is a good idea, but only when part of a total debt reduction plan that focuses all your extra dollars on your high-rate credit card.

For example, let’s say you owe $1,000 on three different credit cards, each with a $25 per month minimum payment, but all with different interest rates (21 percent, 18 percent and 15 percent). Pay only $25 on each card each month and it will take you five years and 10 months to pay them off, along with more than $1,660 in interest.  Increase the payment on each card to $50, and you pay less than $500 in interest and get out of debt in less than half the time. Focus that extra $75 each month on the credit card with the highest interest rate instead of equally to each credit card, and you get out of debt a month sooner and save an additional $40 in interest.

Put your credit cards away and apply every penny you can spare into getting out of debt. Credit cards are a necessary evil, use them wisely. Remember, it is always best to pay the balance in full each month and avoid unnecessary interest charges and fees.  

Mitzi Bacon is Sumter County Extension agent, Family and Consumer Sciences, University of Georgia Cooperative Extension Service. Contact her at 924-4476.


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