Credit Card Secret: Know How You Drain Your Money Yourself

I have heard several people saying like “I paid over 5,000 dollars against a 7,000 debt in less than 6 months and the debt is still the same”! A very common picture. Isn’t it? Most of today’s credit card companies trapping their customer with low introductory interest and complex calculation.

I think it’s time to understand that trap. What is actually causing you give away so much & the debt be unchanged?

Why am I feeding my hard-earned money to this monster!

It’s not enough to pay the minimum payable amount, they said. Give as much as you can to reduce your debt. Use all your savings to get out of debt first. There is no utility of getting 1-3% interest from your savings account and paying 12-18% interest on your debt. Simple? huh!

Now take a look at this simple example. This will show you the real picture.

Say you have a debt of $10,000 and the minimum payable amount is 4% of the debt.

Say you paid 4% of your total debt i.e. $400.
Next month(2nd month)again you pay $400.
Same happens in the 3rd month. You pay $400. The debt is still around $10,000, because along with your payment reduction, the interest is added up and the resulting owe statement becomes merely same. This occurs often, if one pays the minimum payable amount only.

So at the end of (say) 1 year, your total payment is 12X $400 i.e. $4800 and you still owe $10,000.

See how you are draining your money. So pay your debt as quick as possible. Start paying as much money as possible every month and get rid of the debt. You are feeding those money-monsters. The more you delay, more they eat your money and grow.

Prioritize Your Creditors

Rank your debts in order from highest to lowest depending on interest rate. You should pay your highest interest rate debts first.

If you follow this order, your total payment will be less in the long run.

But most people prefer to pay those debts, having small balance, first. After you paid all small debts and ends up with a big amount debt; this may look like the stage achieved after consolidation.

Should I Pay the Highest Interest first

You should choose one method which is suited for you.

Paying high-interest debt first will lessen your total money drainage for sure.

On the contrary, paying off smaller-amount debts will pacify you more, because you could end up paying on a single account. This may take several months to pay. But you’ll be dealing with only one creditor. That is a kind of better thing.

Then again, as I said, choose the method depending on your debt amount and interest.

Don’t mix up interest and amount.

The first method is about paying the high interest first, not the high amount.

And the second one is about paying your small amount debts first.

Don’t forget the trade off between monthly payment and months, required to pay the money.

What You Should Not Do To Get out of Debt

There are few things you should not do to get out of debt.

I have already discussed many things on how you will fight with your debt-monster. Now its time to see the other side of the coin. Today I am going to tell you few things that you should avoid OR be cautious.

I was talking about consolidation and its benefit the other day. But you must not consolidate with higher interest loans. Try to get a loan at the right terms.

Help me in refinancing

Transferring balances to other credit cards is a good solution. They offer low introductory rates.

Wait! First ask yourself if you can pay off the balance before the introductory rate expires. Otherwise the situation will be worse.

You should think of few things before borrowing from your 401K period. Think of the fact if you can contribute to it later. It is difficult until you’ve repaid the loan.

Besides your ‘take-home-package’ reduces. That will directly affect your day-to-day financial need.

Another important thing to be taken account is leaving the job. If you leave your job, you’ll be required to pay the entire loan immediately.

These things are to be kept in mind before you borrow from your 401K plan.

Before you go for a debt settlement make sure you are dealing with a good company, having good reputation in market.

Refinancing, if not done carefully in an organized manner, may cause you loose your home. So be cautious when you plan to refinance your mortgage.

Calculate Your Total Debt

Put down the name of each creditor, total amount owed, monthly payment, and interest rate for your accounts. In this way you’ll be able to calculate your debt. It’s very important to figure out who and how much you owe. Actually this should be your first step to get out of debt.

While considering what you owe, don’t forget to include credit cards, car loans, student loans, home equity loans, personal loans, loans from friends and family, medical bills. You should take account of any and every type of debt that you might carry.

At least, I have a map that shows my destination and a compass that directs the correct way

There are many free debt calculators like Debt-to-Income Ratio calculator, Credit Card Payment calculator, APR calculator, Debt Reduction Calculator, Debt Consolidation Calculator and many more.

So find the best that suits your need.

Debt calculation not only helps you determine how much you owe and how much you need to pay; but also lets you have an analogous idea of the relation between your payment per month & required months.

It may sound tough. But I am sure it’ll make you feel more organized, when you finish your calculation worksheet.

Best of luck.

Thank you for reading my post.

Benefits of Debt Consolidation

Debt consolidation is the best way to solve your debt-problem, because it helps to covers all the unsecured debts and allows you to pay a single monthly payment for all the debts. Even better – it reduces the over all interest rate, which ensures saving up to 40% of the amount, you need to pay.

Let me give you an example. Say you have 4 credit cards with 17%, 15%, 9% & 7% rate of interest. So average rate of interest you were paying is (17+15+9+7)/4 = 12% .

After consolidation your reduced rate of interest is 12%, 10%,7% & 5%. So average rate of interest becomes 8.25%.

Now imagine. If you owe $10,000, the reduced rate of interest would save more than $3000 for you.

Oh! At last all are in one place

See how interesting it is. People commonly do this with a debt consolidation loan, a loan that has the specific purpose of being used to pay off your debts.

Enough talk. Now I’ll list all the benefits of debt consolidation:-

• Lower monthly payments.
• You may be able to consolidate your debts with a lower interest rate loan or credit card.
• You can manage one debt payment instead of several different ones.
• You don’t have to worry about various billing statements, payment amounts, and due dates.
• A god repayment plan, that helps consumers save some money for emergency.
• A well-framed debt consolidation program can make your life debt free within 3-4 years.
• Put an end to harassing collection calls.
• Moreover, few consolidation companies also help you to get a good credit by giving your a/c report in your favor.

I’ll continue giving more details as soon as I find something interesting about debt-management or debt-settlement along with my other financial articles.

Till that time be happy and live a life FREE of tension. For every problem there is a solution. That’s why it’s a “problem”. That has no solution, is not a problem but “situation”. . One must solve problems while coping with situation.

Ah!! Taking all grains together. What are you thinking- I was tired of taking one by one

Cya soon.

Get out of Debt and Be Debt-Free

Whenever I talk about getting out of debt, I know its a very difficult task. It not only requires a good plan but also discipline and action.

When you’re overloaded with debt, it can be difficult to figure out how to best tackle the debt. Coming up with the money to get out of debt is not a simple job. So I always say not to get into debts. How to avoid this, I’ll definitely discuss another day. Today I’ll share few ideas of getting out of debt.

I wanna get out of debt and be free

There are various ways of decreasing your expenses and increasing your income. That way you can collect some money. I’ll write another post on this topic particularly.

You should consolidate your debt with a lower interest rate. I can tell how important this consolidation is. If you consolidate your debt, you can save up to 40% of the money, you are to pay off.

There are few things, you must not do like borrowing from your 401K, consolidate with a higher interest loan etc.

Calculate your total debt.

Calculate how much you can actually pay.

Prioritize your creditor.

Consult with debt-consolidator and go for debt settlement.

All the points, I mentioned above, will be discussed in detail in my future post. And I can assure you those posts are going to help you if you are in need of debt-solution. Those ways will ensure a stop to those harassing phone calls from the collection agency.

Importance of Checking Credit Card Report

Checking regular credit card report can cause you save money in thousands. Late-fees are very dangerous.

I always say to have a detailed idea of credit score and to make sure that the credit score is correct.

Always make sure on-time payment. Late-fees can cost you many dollars.

There’s a myth that the credit score is hurt whenever an inquiry is placed on the credit report. When you check your credit report, it’s called a soft inquiry. But your inquiry doesn’t get added to your credit report and it doesn’t hurt your credit score.

Online credit report checking is so easy!!

It’s very easy to check your credit report online.

So placing an inquiry does not hurt your credit. More over, obtaining and managing credit has become extremely easy because of the internet. So you must check report to avoid late-fee.

Let me tell you within a blink of eye, what you can do about credit card using internet :

• Order a copy of your credit report.
• Obtain credit approval within seconds.
• Learn everything you need to know about managing your credit.
• Get up-to-date information on the best credit card deals, based on criteria, specified by you.
• Transfer your existing balances to your new card etc.

Beside these, you should check your credit card for few other reasons like :

1. If you suspect your identity is stolen.
2. If you are making a plan to repair your credit.
3. If you’re preparing for a major credit-based purchase (home, car etc).
4. If you are planning get out of debt etc.

Checking the report tells you about your credit condition. Hence you can plan you budget better.

Thank you for reading my article.

APY – Annual Percentage Yield

I talked about investing money and choosing good savings a/c system with better APY in my previous post. But it seems that another short and comprehensive discussion will be good on APY.

APY stands for ‘Anangu Pitjantjatjara Yankunytjatjara’ (a remote Australian Aboriginal community in South Australia).

Hey, just kidding.

Of course APY does not mean that but ‘Annual Percentage Yield‘.

Jokes apart, APY, actually, is a tool for evaluating how much a deposit earns you. It takes into account the effect of compounding. It uses different compounding terms (daily, monthly, annually, or other). And the calculation (I have already shown in my previous post) is like this :

APY=POWER((1+(A/B)),B)-1, where A is the interest Rate and B is compounding frequency.

I have created a pictorial view of APY-formula.

I know you may be thinking ‘I already know this’. Yes, you may know already. I am just posting more elaborately for those who need more clarification.

By compounding frequency I meant number of compounding periods per year.

So higher the compound period, higher is the APY. And more APY means you are really making more on your money. As this calculation is compound, you are earning on your earning. See? Now you know why I was always concentrating on getting higher APY.

Say 3 CD’s pay the same interest rate, pick the one that pays out interest most often (i.e. ‘B’ is higher). Then, you can reinvest your interest payments and start earning interest on that payment.

Everybody loves earning more money.

I think I have given a little concept of APY.

See you soon.

Save Money for Future, Allowing It to Grow in a Good Savings Account

Using a savings account, that does not pay you more than 3-4% interest, is waste of time and money.  What I wanted to mean by “a good savings account” is simply the financial organization that allows you to grow your money in a more effective way. Hence it should provide you with better APY.

Just imagine how much your money could have grown, if you had invested in a savings a/c that pays you 4% interest instead of 0.5%. As its a matter of compound interest, so your money would have grown much more with 4%.

Saving money for future. But will this allow my money to grow?

But be careful. APY can be tricky. If you want to calculate APY, here’s the equation:
APY=POWER((1+(A/B)),B)-1, where A is the Rate and B is compounding frequency.

So don’t waste any more time. Find the best APY. Switch to a a/c that pays more interest. Find a high-yield savings account, money market fund, or CD.

I have figured out few characteristics of a good savings a/c:

• Highly competitive interest rates or APY.
• No minimum balance
• No fees.
• Availability of ATM counters
• FDIC insurance

Another thing I want to point out. ‘Savings within personal finance refers to the accumulated money put aside by saving.’ So it is better to bank with those checking accounts, that allow your money to work for you in the market.  As an example E*Trade Max-Rate Checking Account (2.9% APY on accounts over $5K) or an HSBC Online Payment Account (2.25% APY, open an account with as little as $1) etc.

These are the ways you can manage your financial situation. Before opening an a/c, you must prepare a comparative list of all the facilities (APY etc), offered by different banks.

Wish you all the best.