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Tag: credit card debt

  • Post-Holiday Debt Consolidation… Bah Humbug!

    This holiday season is forecasted to be a big one in the area of personal spending. This trend has been gradually increasing over the last few years, especially in the area of e-commerce spending, and retailers are gearing up for the boom.

    Over the holiday season, so many families find themselves using their credit cards to make ends meet. The holiday is a special time with the family and the last things people want to think about during that time are mounting credit card bills or debt consolidation.

    The challenge and reality is that credit cards are the most expensive way to shop for the holidays and ignoring your finances through the holiday season can have devastating long-term impacts. With some planning and guidance you can navigate the holiday season with less debt and with a financial plan moving into 2013.

    If you have credit cards, then by now you likely know how expensive they can get. You may still be carrying debt left over from last year’s holiday season. The interest is what makes credit cards so expensive. Because minimum required monthly payments are set so low on credit cards, and because the interest compounds monthly (12 times per year), once a credit card debt accumulates it becomes very difficult to pay off. Even low rate lines of credit are difficult to pay off, not just because of the interest rate but because of the way the interest compounds.

    For example, if you owe $3000 on your credit card and your interest rate is 17%, that means your monthly interest is $42.00. This will mean that you will have to make significantly more than your minimum payment to pay your balance down. If you accumulated the debt thinking that the minimum payments on your credit card were manageable, chances are you have realized that this is not the case. In reality, it can take years to pay off a debt, even one as small as $3000, by just making the minimum monthly payments. Once the interest begins accumulating, it will begin to consume most of your minimum monthly payment.

    Some people find themselves in so much credit card debt that even managing the minimum monthly payments becomes challenging. No one finds themselves in this situation intentionally and it usually happens over a period of time. Paying them outright is often impossible, as things always come up, such as car repairs, children’s back to school costs, and of course – at the most expensive time of year – all of that holiday spending.

    A debt consolidation can be a vital part of a strong holiday financial plan. By consolidating your debt into a single monthly payment you won’t have to pay all of your credit card bills over the holiday season, thus freeing up some much needed cash flow for holiday shopping. Because a debt consolidation involves consolidating your debt into a single monthly payment, you will sail through the holidays without bills from creditors and will be able start the New Year with one, low, single monthly payment.

    Choosing the right type of debt consolidation is very important. Some debt consolidations bear interest or are over long terms, whereas others can freeze the interest you owe on your debts. The right debt consolidation solution for you will largely depend on your own personal financial circumstances.

    For more information on holiday debt consolidation and to see if you qualify please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Credit Card Payment Calculator – How Long Will it Really Take to Pay off Your Credit Cards

    You likely stumbled upon this article looking for an online credit card payment calculator or for information about using a credit card payment calculator because you are looking to calculate ways to pay off your credit card debt. There are many different debt and credit card payment calculators out there but seeking one out at this point may not make sense. Having too much credit card debt can present a big problem and paying it off can be difficult. Assessing your true ability to pay off your debt and estimating the time it will take to do so involve many considerations.

    Each credit card will have a different interest rate, so unless you have the ability to use a single credit product to pay off all of your credit cards, in essence consolidating your debt, you may find using a credit card repayment calculator inaccurate because of the varying interest rates and credit terms.

    Consider using the credit card payment calculator that exists in your own head. Here are some very simple credit card payment calculations that you can use to get an idea of how long it will take you to pay off your credit card debt.

    How much would it cost you per/month to pay off your existing debt over 4 years at 0% interest? Take your total debt and divide it by 48. E.g. $20,000 debt divided by 48 months would mean it would cost you $416 per/mo. to pay off your debt at 0% interest over 48 months. Now that you know this number, let’s look at the interest rates you are paying on your credit cards.

    Interest rates on credit cards generally range from prime to $29% (Lines of credit are usually prime to 10%, regular credit cards from 15%-23%, department, furniture and department store credit cards are usually from 24%-29%). Credit card interest compounds monthly which means that each month, one month’s interest is applied to the bill.

    The biggest problem with credit card interest and paying off credit card debt is the amount and frequency of the interest coupled with the fact that minimum monthly payments are set very low, usually 1% to 3% of the credit card balance. You will notice that banks will now tell you on your bill the number of months it will take you to pay off your credit card debt. I had a client show me a credit card statement for a Visa with a 19.9% interest rate which indicated that it would take the client 96 months to pay it off at the minimum payments.

    Here’s why. If you took that same $20,000 credit card debt in our first example and made it a single product at 19.9% interest, your minimum monthly payment would likely be $200-$300 per/mo. To calculate the monthly interest that would be applied to the credit card, all we have to do is take the interest rate of 19.9% and divide it by 12 months (remember it compounds monthly). In our example, that would make the monthly interest 1.66%. Now multiply the $20,000 by the 1.66% and presto, the monthly interest would be $320. That means on your monthly billing date $320 would be added to the credit card, making the balance $20,320. Even if you make a $300 payment, you owe more than you started with, which is why credit cards are so difficult to pay off. To pay off credit card debt in a reasonable time period you would have to double or triple your minimum payments.

    Before playing around with the numbers using a credit card payment calculator take a step back and be realistic about your situation. How much money can you apply in addition to minimum monthly payments? Is it realistic that you will be able to pay off your credit card debt without restructuring it? Are you finding it difficult now to even manage your minimum payments?

    Figuring out how to deal with credit card debt will involve closely analyzing your budget, cash flow and resources to come up with a solution. There are some debt restructuring programs available that can freeze or even reduce the amount of debt you owe and offer you a single monthly payment. The best thing that you can do is seek out financial counselling if you are struggling with a financial problem. By working with a financial specialist who focuses on debt consolidation and financial restructuring you can access the programs and resources that are available to help you get out of credit card debt.

    If you would still like to use a credit card payment calculator, click here to use DebtCare Canada’s online credit card payment calculator. If you have a financial problem and need help, please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • How to Rebuild Your Credit Blog Series – Part 4 Having Too Many Credit Products and Too Much Debt

    This is the fourth blog in a 4 part blog series about how to rebuild your credit. When you accumulate too much debt or have too many credit products, this can harm your credit. Credit card companies are aggressive, using marketing points programs, promotion and incentives to entice consumers to take out a credit card. Over time, it is not difficult to find yourself with several different credit cards with balances that are accumulating interest.

    If you want to know how to rebuild credit and you have several credit cards, your first step will be to close some of them. Some financial advisors will tell you that closing credit cards will actually harm your credit, when in fact in the long run getting rid of credit cards will increase your credit score. Having one or two credit cards is sufficient to have good credit so if you have more than that, closing some of them is a good idea. How you go about closing credit cards is the key.

    Firstly, closing all of your credit cards is not a great idea unless it is part of an overall plan to settle out your debt, and then taking out a single card to rebuild your credit. Simply closing down all of your credit cards without a plan to have a credit item to rebuild credit will reduce your credit score. If you have accumulated a lot of credit card debt and are working with a company to get rid of your debt with a plan to rebuild, then naturally it will involve wiping the slate clean (clearing and closing all credit card debt) and then starting fresh. In the absence of a financial plan to rebuild, closing all of your credit cards may reduce your credit score because you will not have credit reporting to your credit report. This is necessary to build your credit score because it shows new potential creditors, mortgage providers for example, how you pay your monthly obligations.

    Also, do not close out credit cards that have balances. If there are balances on credit cards you should first deal with the balances either by paying them off, settling them, or including them in a financial program to get out of debt. Once the balances are cleared, you can go ahead and close out the card. If you close cards when you have balances the result will be a credit card that has a balance and a zero credit limit and this will have the same negative impact on your credit report as if you have a credit card that is maxed out (see part three “Credit Balances That Are At, Close to or Over” in our four part blog series How to Rebuild your Credit).

    Additionally, if you plan to close out your credit cards make sure you write to the credit card provider clearly indicating that it is you who wants to close out the credit card balance. When a creditor closes your credit card they can report one of two things to the credit bureau: “credit limit closed by consumer” or “credit limit closed by credit grantor” – you do not want the latter reported on your credit report. Sending a letter will enable you to prove to Equifax that you in fact closed the card in the event that the credit does not report who closed the card accurately.

    This may all seem like good advice, but if you are drowning in credit card debt, closing credit cards right now is not really an option without a financial plan. Learning how to rebuild your credit takes time, as does dealing with accumulated credit card debt. There are fast and effective methods to deal with debt and start rebuilding your credit, but in most cases they will involve the assistance of a financial professional who can guide you out of your debt with a plan.

    If you would like more information about how to rebuild your credit or if you are in debt and need some guidance, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • How to Rebuild Your Credit Blog Series – Part 3 Credit Balances That Are At, Close to, or Over

    This is the third part in a four part blog series about how to rebuild your credit. Learning how to rebuild your credit begins with learning how to manage it. One major impact to your credit score is when you have credit card products that are close to, at, or over their limits.

    Many people think that the best way to build credit is to get a credit card, use it, and then make monthly payments. This is a dangerous proposition. How you manage each credit card will impact your credit score either by either increasing or decreasing it.

    Learning how to rebuild your credit means understanding how your credit habits can result in a decrease to your credit score. As a rule of thumb you should try to ensure that your credit card balance does not exceed 75% of your limit. If it does, it will not only reduce your credit score but will also trigger a message on your credit report that says “proportion of balances to credit limits are too high”. Even if you have 10 credit cards and only one of them is close to, at, or over the limit, it will negatively impact your credit score and trigger the above mentioned message on your credit report.

    If you have had bad credit in the past and are trying to figure out how to rebuild your credit you may see a secured credit card as one option, and financial professionals will often suggest this as a way to rebuild credit. When you take out a secured credit card, you will send the credit card company a deposit and then they send you a credit card with a limit equal to or less than the deposit you sent them. When you do this, that credit card has the potential to rebuild your credit. Re-loadable credit cards are not secured credit cards and do not rebuild your credit.

    When trying to rebuild your credit, if you take out a secured credit card it is likely that your secured credit card will have a smaller limit, usually $200, $500 or $1000. We discussed the issue of how much of an impact it can have to your credit if you have a balance on even one credit card that is close to, at, or over your credit limit. This is one of the most common mistakes people make when they take out a secured credit card. Capital One is a company that offers secured credit cards and often a first time secured credit card with Capital One will have a low starting limit of a couple hundred dollars. Even if the limit on your secured credit card is only $200, do not carry more than 75% of your limit as a balance. For example, if your secured credit card has a limit of $200, do not run a balance higher than $150.

    In other situations, when people begin nearing or going over their credit limits on credit cards, it is a sign of a deeper financial problem. It is very easy to get in over your head with credit cards. You may have a few credit cards and one month you may use one to make an expensive car repair, and then another month you may use another when you go on vacation, and then another month you may use another one to make repairs in your home. Before you know it you can have several credit cards with high balances and when interest begins to accrue they can become very difficult to pay off. Minimum payments barely cover interest and if you get caught in a cycle of only being able to afford the minimum payments it can take many, many, years to pay them off.

    If you want to know how to rebuild your credit and you have credit card debt and are only making minimum payments right now, it may be time to make some choices that will enable you to rebuild your credit. Sometimes it’s hard to know which choices are the right ones when it comes to dealing with your debt. There are many resources available to people who struggle with debt. Once you have dealt with your debt and are beginning the process of rebuilding credit, your best option when using a new credit card that is meant to rebuild credit is to use the card for limited expenses, such as gas, and only use as much as you can afford to pay off in full in a given month.

    If you would like more information about how to rebuild your credit, or if you are in debt and need some guidance, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.