Monthly Archives: August 2016
Credit cards offers are difficult to stand up to. It would be intense for the vast majority to leave behind an offer for a 56 inch plasma TV worth $2500 for just $50 a month on a credit cards. Despite the fact that numerous people can bear the cost of a $50 regularly scheduled installment, they may not understand that they will wind up paying more in enthusiasm than for the first cost of the TV.
# The Cost of Paying Only the Minimum Due
It is a common mistake to let yourself get used to paying only the minimum amount that is due on your credit card bill. A small monthly payment may seem insignificant. However, the payment may not look so insignificant when you understand the true cost of credit cards and interest.
Let’s say that you really did go out and buy a new plasma television for $2,500. You used a credit card that had an annual percentage rate (APR) of 18 percent. Your minimum monthly payment may be as low as $50 like in the example mentioned above, but in order to calculate your total long-term costs, you will need to know how your minimum payment was determined.
# How Minimum Payments Are Calculated
A minimal payment is typically determined by using a percentage of your entire balance. The percentage amount is usually about 2 percent but can vary depending on the card. Keep in mind that the minimum payment goes towards the interest charge and to the original amount that you owed. In this case, the original amount was $2,500.
For the $2,500 plasma television, 2 percent of your original debt would be $50.
With an APR of 18 percent, your payment would cover $38 in interest and $13 towards your $2500 liability. After the first payment, you would still owe $2487. The basic formula is:
- Divide 18 percent by 360 days of the year which equals .05 percent.
- Multiply .05 percent times 30 calendar days which is 1.5.
- Finally, multiply 1.5 by the $2500 original balance which equals $37.50 ($38 rounded) in interest.
# The True Cost of That Purchase
If you paid only 2 percent of your total balance due every month, it would take 334 months to pay off your debt. In other words, it would require 28 years to pay off a $2,500 liability. The television will probably have stopped working long before you have paid it off.
Even if you decided to pay for 28 years, you would also have paid $5897 in interest. Your true cost for the 56 inch plasma television would end up being $8397.
# Letting Interest Work For You
However, image what you might have earned if you had put the $50 into a savings account for 28 years. Even at today’s current low rates it would have been a substantial amount.
For instance, let’s say you started a savings account or opened a CD with a 5 percent rate and deposited $50 every month for 28 years. Also, let’s include what you would have paid in taxes with a tax rate of 25% on the income that generated.
Your total savings would have been $29,648. You would have earned $17,130 in interest income. Your total tax cost would have been $4,283. After taxes, you would have made an extra $12,847. You could have paid for the television in cash and had plenty of money left over.
# Don’t Fall Into the Credit Card Trap
A lot of individuals get tempted by the credit advertisements and deals that are too good to be true. However, when you look at the long-term consequences, the low monthly payment offers will usually cost you a lot more money.
It is a good idea to learn about how much a credit card transaction would really cost before going through with the purchase. You can check for yourself here at with these credit and debt management calculators. Check out the “minimal payment credit card calculator,” which can tell you:
# Your total cost with minimum payments
How many payments it will take to pay off the entire balance with minimum payments
How different rates will affect the total costs
Credit companies usually make huge profits by offering teaser rates and low minimum payments. It is one way of maintaining their income by keeping consumers in debt for 10, 20 or even 30 years. Instead of adding to their income, you might consider building a savings account by depositing what you would have spent on your minimal monthly credit card payments.
Credit cards can play an important role in our lives. They can provide emergency funds for a major car accident or another critical situation and allow you to recover quickly in a time of need. If you have to use credit, pay your bill in full each month. If you have to rely on making smaller payments try to pay at least $10 over the minimum payment and only charge items that you can truly afford. This can save you thousands of dollars in interest charges.
If you are frustrated by the sometimes lengthy family budgeting process and are longing for a quick fix that will save you money almost instantly, start in the grocery store. Your food bill is probably one of the largest budget-breakers. On average, U.S. consumers spend more than 13 percent of their income on food. Fortunately, your food bill is one of the most easily manipulated, and saving money is virtually effortless.
First of all, everyone’s heard that you should not shop when you’re hungry, and that’s a good idea. Here are other smart shopping ideas to consider:
# Always shop with a list. On average, impulse buying accounts for 20 to 50 percent of a total grocery bill. Instead of wandering aimlessly through the aisles, bring a shopping list and a pen with you.
# Grocery stores are for groceries. Books, batteries, light bulbs, and pet supplies can all be found at the grocery store. Before you purchase everything you need from one store, make sure you aren’t paying too much.
# Shop alone. Marketers spend a lot of money convincing kids to buy their cereal for a reason. By reducing your distractions, you can make thoughtful purchase decisions.
# Carefully consider the cost of convenience. As a general rule, the more convenient the item, the more it will cost. Ask yourself if it is really worth paying more for shredded cheese when shredding it yourself would take mere minutes and save you some cash.
# Shop only once per week. Try to adjust your schedule and your purchases so that you are going to the grocery store once a week. This will help reduce impulse shopping and should be a big cost saver. If you must go more than once per week, stick to your list.
# Plan your route. To find the most natural and least expensive ingredients, such as dairy, bread, vegetables, and fruit, try skipping the center of the store and make a loop of the outermost aisles.
# Consider generics. Look for generic brands of items where it really doesn’t make a difference. For example, most dry goods have the same ingredients, regardless of the brand. The difference in price, however, can be as much as a 50 percent discount.
# Use coupons wisely. Only use coupons for items you are planning to buy anyway. Also, make sure you compare the price of a product with the discount on the coupon to the regular price of the brand you normally buy.
Financial setback unavoidably happen, and in the event that you end up managing a cutback, high therapeutic costs, or another difficulty, there are a few stages you ought to take to begin the street to recuperation.
# Survey your own circumstance
To begin with, evaluate the circumstance so you know precisely what you are managing. It is safe to say that this is a one-time misfortune, or a continuous issue? Is it impermanent or lasting? Know precisely how much cash you’ll need, and the amount you have.
# Analyze available financial resources
Determine what resources are available to you, both from your own accounts as well as insurance. If you are facing medical bills, have you made sure everything has been covered appropriately by insurance? If you’ve been laid off, look into Consolidated Omnibus Budget Reconciliation Act (COBRA) extended health insurance coverage, as well as unemployment insurance. Do you have an emergency fund? If so, this may be the right time to start using it.
# Create a personal financial plan
With your spouse, work through your budget and your bills, and decide how you are going to get everything paid. Is there opportunity to earn more or spend less? Know exactly how you’ll be spending your money over the next few months, and make a plan to track your progress.
# Set financial priorities
After you know exactly what your situation is and what resources you have available to you, you’ll need to set priorities. Go through your budget and determine if there is any opportunity to decrease costs, such as canceling or cutting back on cable.
Know which bills have to be paid immediately, and what things you can prioritize later. Just don’t be tempted to go without insurance – this can change a minor setback into a major one very quickly.
# Contact your creditors
Finally, if there are some bills you absolutely cannot afford to make minimum payments on, contact your creditors to work through payment options. You should make these phone calls before your bills end up in collections, because once there, your options are limited.