Credit cards are commonplace, and more than eight out of every 10 adult Americans have one in their wallet. These accounts make spending money relatively easy. All you need to do is swipe the card and get your product or service — and then worry about paying the debt back later.
However, credit card minimum payment structures typically keep consumers in debt for a significant period of time. That, combined with high interest rates, can make seemingly convenient credit card purchases quite costly. But just how expensive is credit card debt?
Find out how fast you could get out of debt today.
How much does credit card debt cost now?
There are a few factors that play a role in how costly credit card debt is. Those include your balance, your interest rate, your annual fees and how your minimum payment is calculated. According to TransUnion, the average outstanding debt per cardholder in the United States is about $6,088 and the average interest rate on credit cards is 21.47%.
Moreover, the Consumer Financial Protection Bureau (CFPB) says the average annual fee on credit cards is about $94.
So, how much does $6,088 at approximately 21% interest cost if you make just minimum monthly payments and pay $94 per year in annual fees? Here are a few examples based on popular credit card minimum payment calculations:
- 1% of the balance plus interest: You'll pay a total of $10,028.52 in interest over more than 24 years. Considering a $94 annual fee, you'll also pay a total of $2,256 in annual fees over that time, bringing your lifetime interest and finance charges to $12,284.52 on $6,993 in credit card debt.
- 2.5% of your balance (inclusive of interest): You'll pay a total of $13,246.20 in interest. It will take you over 31 years to pay the debt off, adding $2,914 in total annual fees at a rate of $94 per year. That means you'll pay a total of $16,160.20 in interest and finance charges on $6,993 of credit card debt.
- 5% of your balance (inclusive of interest): You'll pay $3,189.08 in interest over 9 years. You'll pay an additional $846 in annual fees, bringing your total interest and finance charges to $4,035.08.
Take advantage of debt relief solutions that could save you money now.
How to cut the cost of credit card debt
"Debt happens," says Julie Beckham, AVP, financial education development and strategy officer at Rockland Trust. "Fortunately, getting out of debt happens too! You just need a plan that is motivating and achievable."
Here are a few things you can do to get out of debt faster and spend less in interest and finance charges in the process:
Take advantage of debt relief services
One of the best ways to cut the cost of credit card debt is to reach out to a debt relief service for help. Debt relief services usually help in one of two ways:
- Debt consolidation: Debt consolidation experts start by learning more about your financial position. They use what they've learned to negotiate better rates with your current lenders and create an effective, yet affordable payment plan. You then make a single monthly payment to the debt consolidation company and they'll make payments to your lenders on your behalf until your debts are paid off.
- Debt settlement: Debt settlement companies usually start by assessing your financial situation and creating a payment plan for you. You stop making payments to your credit card companies and pay the debt settlement company instead. The debt settlement company generally saves your payments in a special-purpose savings account. Once you've saved enough to start settling your debts, the debt settlement company negotiates the principal balance of those debts on your behalf. Though this can lead to hefty savings, it can also have a detrimental impact on your credit score.
Refinance your credit card debt with a debt consolidation loan
You can also refinance your credit card debt using another low-interest loan. For example, you could take out a home equity loan and use the money you receive to pay off your high-interest credit card debt. There are also debt consolidation personal loans that come with lower interest rates than credit cards alongside a fixed payment plan for faster payoff. However, it's important to compare your options and seek the lowest interest rate possible when you consolidate your debts.
Prioritize your payments
"One way to reduce the cost of this debt is to prioritize paying off higher interest cards first," says Beckham. "This saves you money in the long run. However, a method called 'the snowball method' is kind of motivating — this involves paying off the credit card with the lowest balance first so you can feel some sense of accomplishment which might motivate you to keep going."
The bottom line
Credit card debt is expensive in the long run. But, there are several approaches you can take to get out of it faster while paying significantly less in interest and finance charges in the process. "Whatever your approach, gear up for the long haul," says Beckham. "Tackling debt of any size can be more of a marathon than a sprint, but with a goal in sight and a plan of action, you can reach the finish line."
"payment" - Google News
January 24, 2024 at 02:50AM
https://ift.tt/EGPH10p
How much does credit card debt cost now? - CBS News
"payment" - Google News
https://ift.tt/godUqSL
https://ift.tt/E27hvCe
Bagikan Berita Ini
0 Response to "How much does credit card debt cost now? - CBS News"
Post a Comment