Managing your debt is the only way to avoid financial distress. Debts include mortgage payments, car loans, and of course credit card bills.
Paying your credit card bills on time will help you maintain a good credit rating. You should also pay more than just the minimum amount. Paying only the minimum can increase your overall debt as, over time, you will pay more in interest.
You must make sure you do not miss credit card payments, and do not pay late, as you will be charged. In addition to costing you more, late payments hurt your credit rating.
How long it takes to pay off your credit card bills depends on the amount you pay and the interest rate on your credit card.
It is important to pay close attention to your credit card statements as the bank are now requested to advise you how many years it will take you to pay your balance at the minimum payment.
The following examples are for a credit card bill of $1500, with a 19% interest rate.
How long will it take me to pay off my credit card bill: minimum amount
If the minimum amount is 4% the first month payment is $60 on the $1500 debt. If you continue to pay $60 per month it will take 33 months to pay off the debt. In total, you will have paid $1980. This is an extra $480.00 or over 30% of the initial amount your borrowed.
How long will it take me to pay off my credit card bill: $10 extra
If you budget an extra $10 per month for paying off your credit card bills, so you are paying $70 per month, it will take you 27 months to pay off $1500. In this scenario, you will have only paid $1890 on the $1500 debt.
How long will it take me to pay off my credit card bill: $25 extra
You will save even more money if you can allocate $25 per month. You will now be paying $85 per month, and it will take 21 months to pay off the $1500. Your total amount will be $1785.
How should I manage my debt?
Make a budget by analyzing your income and expenditure, and assign an amount for repaying your debt. Make sure you budget for the whole monthly bill, not just the minimum amount.
If, however, paying your credit card bills is overwhelmingly difficult and is leading your into a financial mine field, you should consider debt consolidation. Debt consolidation, also known as a proposal, entails coming to an agreement with your creditors to manage your debts.
Sources used in researching this article include TD Canada Trust: Managing your debt and GetSmarterAboutMoney.ca: Pay off credit cards and debt calculator