Credit Card Bills and More Credit Card Bills - I Don't Want to Pay Any More!

“Canadians are increasingly relying on credit cards and credit lines to finance day-to-day expenditures, and the total national household debt in Canada has reached an all-time high of $1.3 trillion, according to a report released Tuesday.”

This finding was printed in an article in CBC news dated May 26, 2009. So if you are reading this hub, and you have a sick feeling in your stomach every time you sit down to pay bills, know that you are not alone.

The intention of this hub is to help you eliminate your credit card debt and remove that sick feeling in your stomach.

This is a critical time for all of us. We have enjoyed a historic low in interest rates over the last few years. Early in 2009 the Bank of Canada publicly announced their commitment to keep interest rates low until mid 2010. Well folks, then what? The prediction is that interest rates will slowly start to rise by 4th quarter 2010. NOW is the time to address your debt. NOW is the time to take control of your finances. Think about this. If you’re struggling to pay your bills today, how are you going to manage when interests rates go up?

It can seem overwhelming to be responsible for a mortgage, car loan, line of credit, perhaps another loan, and several credit card balances to pay each month. For too many people there is much more month than there is money. There is no overnight fix for this. It took time to get you in this deep and it’s going to take time to get you out. However with a little strategy, it can take less time.

Most of us know that if you only pay the minimum required on you credit cards you will never get them paid off and it will cost you a fortune in interest at that rate. A common strategy is to pay a little more on each card every month and we still feel like the credit card debt will never be gone.

I propose a much more effective strategy that I will share with you here. In the interest of simplicity I’m going to use a very basic example. It will be easy for you to substitute your actual situation into the equation.

Now, this strategy requires you to make 2 promises to yourself:

  1. You will NOT make any additional purchases on any of your credit cards except for extreme emergencies. That means life threatening emergencies, not I'm out of beer emergencies. :)
  2. You will make a commitment to dedicate a monthly sum of money larger than the minimum expectation to pay.

Let’s say that you have 4 credit cards that carry a balance and the minimum commitment to pay is $25 for each one. This means that you MUST pay a total of $100 each month for all 4 credit cards.

At this point you need to go through your budget and determine how much money you are willing and able to commit to paying off your credit cards each month. Let’s say that you are able to put $500 each month towards credit card debt.

The following illustrates how you will make your credit card payments.

  • Card 1 pay the minimum $25
  • Card 2 pay the minimum $25
  • Card 3 pay the minimum $25
  • Card 4 pay $425 (the difference between your commitment to pay $500 and the minimums on all but one of your cards)

As you can see, you will choose one card to aggressively target for quick pay down. Ideally you will choose the card with the highest interest rate. However if you have a card with a smaller balance, one that can be paid off within 2-3 months, you may want to pay it off first even if it’s a lower interest rate. There’s something to be said for the psychological value of having one paid off so quickly. Plus that gives you an extra $25 to put towards the next bill.

So now let’s say you’ve paid off Card 4. Remember your commitment is still $500 every month. Here’s the next payment strategy:

  • Card 1 pay the minimum $25
  • Card 2 pay the minimum $25
  • Card 3 pay $450

Let’s try a real example to see how long it would take to pay off 4 credit cards with significant balances. Let’s say that this is our real life situation:

Card #     Balance Owing   Interest Rate     Min Paymt
Card 1        $8,000            11%            $83
Card 2        $6,000           18.5%           $103
Card 3        $5,000           19.9%           $93
Card 4        $2,000           19.9%           $43
Total        $21,000                           $322
 

We’ve decided to aggressively attack Card 4 first since it’s the lowest amount and still shares the highest interest rate. We’ve also determined that we can allot $800 every month to pay credit card bills.

Month 1          Balance Owing      Payment Amount
Card 1              $8,000               $83 
Card 2              $6,000               $103
Card 3              $5,000               $93
Card 4              $2,000               $521 
Total               $21,000              $800 
Month 2          Balance Owing      Payment Amount
Card 1              $7,917               $83 
Card 2              $5,898               $101
Card 3              $4,907               $91
Card 4              $1,515               $525 
Total               $20,236              $800 
Month 3          Balance Owing      Payment Amount
Card 1              $7,834               $82 
Card 2              $5,797               $99
Card 3              $4,816               $90
Card 4              $1,006               $529 
Total               $19,452              $800 
Month 4          Balance Owing      Payment Amount
Card 1              $7,752               $81 
Card 2              $5,697               $98
Card 3              $4,726               $136
Card 4              $485                 $485 
Total               $18,660              $800 
 

In 4 months Card 4 is completely paid off and we’ve started to work on Card 3. In case you’re thinking the math isn’t right when you subtract the payment amount from the amount owing, you must remember to add the interest to the new balance. Also, each card may vary as to the formula they use to calculate the minimum payment. I know that, at the time of this writing, TD Visa’s minimum payments are comprised of the interest plus $10. I used that same formula for each card. I also rounded off the dollar amounts. So this is a reasonable estimate of how long to pay off this $21,000 credit card debt load. So… on to the next card:

Month 5          Balance Owing      Payment Amount
Card 1              $7,671               $80 
Card 2              $5,599               $96
Card 3              $4,666               $623
Card 4              $0                   $0 
Total               $17,937              $800 
 
Month 6          Balance Owing      Payment Amount
Card 1              $7,591               $80 
Card 2              $5,503               $95
Card 3              $4,110               $626
Card 4              $0                   $0 
Total               $17,204              $800 
 
Month 7          Balance Owing      Payment Amount
Card 1              $7,511               $79 
Card 2              $5,408               $93
Card 3              $3,542               $628
Card 4              $0                   $0 
Total               $16,462              $800 
Month 8          Balance Owing      Payment Amount
Card 1              $7,432               $78 
Card 2              $5,315               $92
Card 3              $2,962               $630
Card 4              $0                   $0 
Total               $15,709              $800 
 
Month 9          Balance Owing      Payment Amount
Card 1              $7,354               $77 
Card 2              $5,223               $91
Card 3              $2,371               $632
Card 4              $0                   $0 
Total               $14,948              $800 
 
 
Month 10          Balance Owing      Payment Amount
Card 1              $7,277               $77 
Card 2              $5,132               $89
Card 3              $1,768               $634
Card 4              $0                   $0
Total               $14,177              $800 
 
 
Month 11          Balance Owing      Payment Amount
Card 1              $7,200               $76 
Card 2              $5,043               $88
Card 3              $1,150               $636
Card 4              $0                   $0 
Total               $13,393              $800 
 
Month 12          Balance Owing       Payment Amount
Card 1              $7,124               $75 
Card 2              $4,956               $205
Card 3              $520                 $520
Card 4              $0                   $0
Total               $12,600              $800 
 

Here you can see that within 12 months you have completely paid off 2 of the 4 credit cards totaling $8,400. The rest will be even quicker from here. The following is your 13th month.

Month 13          Balance Owing      Payment Amount
Card 1              $7,049               $75 
Card 2              $4,757               $725
Card 3              $0                   $0
Card 4              $0                   $0
Total               $11,799              $800 
 

I’m sure you get the picture from here. It will take approximately 18 more months to completely pay off all the cards in this scenario. In total it would have taken about 2 ½ years. It may seem like it will still take a long time to accomplish your goal. But let me ask you this. How long have you been attempting to pay off these cards your way? Now that you have a strategic plan and you’ll be able to see results rather quickly, I think you’ll find those couple of years are well worth it. Now once this is done do you know what this means?

It means that you now have $800 every month of additional disposable income. Income that you can do whatever you like with. Can you think of something to do with that extra $800 every month?

I suppose the next question would be “Where do we find the EXTRA money to put towards credit card debt?” Well my friends, that’s another hub. Stay tuned.

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Comments 1 comment

Eileen Hughes profile image

Eileen Hughes 6 years ago from Northam Western Australia

Its unbelievable how some peopl let a credit card rule their lives. If you are a person that cannot resist buying something on the spot and put it on credit.

Then your best option is to cut up the credit card.

Thanks for sharing this information

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