How to End the Never-ending Credit Card Debt

How long does it take to pay off a credit card debt? Does your credit card debt seem an unending nightmare?

Well, to give you some perspective: if your credit card debt is, say, $5,000 (which is a fair amount to many people), and you pay only the monthly minimum, it would take more than 25 years to pay off your credit card debt, if the APR (Annual percentage rate) is only 12.9 percent. Most credit cards charge a fixed interest rate, which is the APR divided by 12 months. That is, if your fixed interest rate is 18 percent, you will be charged 1.5 percent of the outstanding amount per month. If the APR is 21 percent for the same amount of $5,000, it would take more than 85 years to pay off your credit card debt.

So to end the never-ending credit card debt, you must know and understand the financial implications of the APR of your credit card. Obviously, the lower the APR, the lower the interest payments become.

The second consideration is that the higher the monthly payments, the sooner you will get out of the credit card debt.

The ideal situation to get you out of your credit card debt is: the lower APR combined with the higher monthly payments.

With the above in mind, here are some strategies to reduce your credit card debt:

• Go to a bank or a lending institution to get a loan with a fixed interest rate for 5 years to pay off your credit card debt. This strategy could reduce 15 to 20 years off the time it would otherwise take to pay off your credit card debt.

• If you cannot obtain a loan to pay off your credit card debt, then try to increase your monthly payments. Always pay more, if possible. This will reduce the payment period considerably - just like getting a bank loan.

• Pay off the credit card with the highest APR first. If all your credit cards have the same APR, then pay off the one with the largest balance.

• Stop using your credit cards. Stop incurring extra charges, such as over-the-credit-limit, or late payment. Don’t use them for convenience; instead, only use them for emergencies.

Go to Smart Credit Cards to choose a smart credit card that will become an asset, not a liability, to your personal finance.

Stephen Lau

Smart Money Management Resources