Get serious about debt repayment
When was the last time you looked at the bottom of your credit card bill?
According to my last bill, if I make only the minimum payment, it’ll take me 17 years and one month to pay off my $1,949.24 balance. At 19.99 per cent, that means I’d be racking up interest at the rate of $32.47 a month. Hold on a sec, my minimum payment according to my statement is $10. How is that calculation right? If I rack up $32 in interest and make a payment of $10, I’m still going in the hole $22 a month and I’ll never get that puppy paid off.
I guess you can’t even trust a bank to get the math right.
Even if I did take 17 years and one month to get to debt-free — ludicrous, right? — what would that cost me in interest? Oh, about $3,400. Yup, my less-than-$2,000 balance would cost me almost $3,400 in interest because I only paid the very least I had to each month. I wouldn’t be out of debt until the year 2032. Holy Hannah! No wonder the banks are making money hand over fist. If you’re one of the dopes who carries a balance on your credit card, I want you to figure out how old you will be when that balance is finally paid off. No, seriously, figure it out. If you’re 30 now and it takes 18 years to pay off your balance, are you happy with the idea that you’ll be 48 before that balance is gone? Imagine you’re 47 and looking back at the shoes, TV or toy you bought and have still not paid off. Or the wine you drank, food you ate or vacation you took that you’re still paying for. Not happy with that idea? What are you going to do about it? Since you can’t trust the bank to do the math for you, you’re going to have to do it yourself. Don’t whine. This is Grade 5 math and you’re more than capable.
First, divide the balance you owe by the number of months in which you wish to have the loan paid off. So, if you want to pay off that $2,200 balance in eight months, you’d come up with $2,200 divided by eight, which equals $275. Next, figure out your monthly interest cost. So if your $2,200 is at 18.99 per cent, your monthly interest would be $2,200 times 18.99, divided by 100 then divided by 12, which equals $34.81.
Add those two numbers together: $275 plus $34.81, which is $309.81. You would have to make a monthly payment of $309.81 to achieve your goal. (Since interest is calculated on a declining balance, you’d actually hit your goal a bit earlier.) Making minimum payments on credit cards is a sucker’s game that serves only to make the banks richer and you poorer. If you’re not OK with that, stop making minimum payments.
Wouldn’t it feel great to be just another year older when you’re finally off the credit card treadmill? Gail Vaz-Oxlade is host of Til Debt Do Us Part and Prince$$. She blogs daily at gailvazoxclade.com. Follow her on Twitter @GailVazOxade.