Feb 22 – Let’s talk about debt, the good bad and ugly.

The basics

So before we talk about options on how to get out of debt let’s give some examples of how much debt costs you and how difficult it is to get out of debt.

You owe 5k on a credit card that charges 19% APR. This means your debt is goin to grow $950 a year if you don’t pay it off. If you say paid the min which was 2% which is $100 a month what this actually means is that $79 of that $100 goes to cover the interest and only $21 actually comes off the debt itself. As you can see the interest rates makes a big impact.

Credit card companies give temping offers to try and get you spend on them as they know once the real APR kicks in they will make all their money. For every month there is a balance left on the card the credit card company is making money.

Is credit card debt or personal loans ever ok?

I have mixed views on this. I have taken advantage of many free credit card offers as well as promotional PayPal credit offers over the years. However I know I have also failed to pay many during the interest free terms and have probably paid more in interest that I have gained in a lot of cases. This is my money that could be earning money for me not pearling money for someone else.

Its very very easy to spend money you don’t have on credit cards. As of today I have no credit card debt, I do have 2 items on promotional interest free payment plans with PayPal credit but both are setup with auto payments each month and both will be cleared AHEAD of when they actually expire. The only time I use credit cards now is to pay for something big where I actually have the funds to pay cash but choose to take the 60 days interest free a credit card offers me. But I always have the money to pay it off.

How can I get out of debt

First you need to accept you have the debt. You then need to stop spending on them, adding to is the worst thing you can do.
Next you need to work out the APR on each one work.
Next you need to work out all your bills / how much can you afford to pay each month. There is always to increase this.

You can reach out to your lender and ask to reduce the APR ask for something like 24 months at 0%. They will reject this but will probably offer you a better rate than you are on so you instantly gain.

How you pay the debt off will depend if you have multiple cards and their balance. Some will recommend paying the highest APR off first. For me I think paying off the smallest balance is better as then you can say you cleared 1 card.

Clearing debt is not easy in fact it’s very hard credit card companies make money from you having the debt. It will take time but if you are committed you can clear your cards.

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