How Much Does Credit Card Debt Cost You?
If you’ve missed a payment on your credit card balance, you know how painful it can be to rack up credit card debt. Depending on the credit card, one late payment may be all it takes to increase your already-high regular interest rate to a stratospheric penalty rate, commonly known as the “penalty APR.”
When you’re already struggling to make your minimum payments and stay ahead of your debt, you’ll doubtless find it extremely difficult to manage your monthly bills in penalty APR territory. Once you’ve reached this point, it may be time to seek the help of a professional debt consolidation provider. After all, there’s no shame in admitting you won’t be able to keep up with your payments.
The Actual Costs of Credit Card Debts
If you miss more than one or two payments on your card balance, chances are your penalty APR will run close to 30%. That means that a card balance of $5,000 will balloon to $6,500 after just one year. If you’re making just the minimum payment of $50 or even $100 per statement, you’ll literally just be paying off the accumulating interest on your balance! Welcome to one of the many unseen costs of credit card debt.
Although recent legislation has forced credit card companies to be more upfront about how they calculate their interest rates and when the penalty APR applies to outstanding balances, you’ll be forgiven if you still find it difficult to get the credit relief you need when you’re being charged upwards of 25% on your purchases. Making as few as two late payments can trigger one of the major costs of credit card debt: the application of penalty interest rates not only to purchases made after the late payments but to the entirety of your outstanding balance.
In other words, you could be forced to pay penalty interest on years’ worth of card balances merely because you were trying to make an essential purchase like food or clothing for your family. That’s just not fair.
New Law To Lower The Costs Of Credit Card Debt
One new law, called the CARD Act for short, requires credit card companies to notify you that your interest rate is going to rise at least 45 days in advance of the increase. It also limits the application of penalty rates, requiring card companies to reduce your rates back to normal levels once you’ve made on-time minimum payments for six consecutive statements. These are both good things, but they don’t fundamentally reduce the costs of credit card debt. For that, you’ll need to turn to a debt consolidation professional who can help negotiate lower balances with your creditors and actually reduce the total amount you owe.
Think about it this way: It’s great that credit card companies have to notify you that you’ll be subject to a penalty APR 45 days before it actually happens, but it still doesn’t change the fact that it will happen. In order to prevent such a rate increase, you’d have to pay off your balance in full, which probably isn’t possible if you’re already struggling to meet your minimum payments.
It’s also good that the penalty APR can only continue for six statements if you make your minimum payments on time, but six statements’ worth of increased interest still hurts. We’ll go back to the $5,000 balance example. At an interest rate of 23%, typical of many credit cards, six months of interest is worth about $575. If the penalty APR on that same card is 29.99%, as it often is, six months’ worth of interest comes out to $749.75. That’s a difference of nearly $200! In other words, those couple missed payments ended up costing you money that you don’t have.
The Hidden Costs Of Credit Card Debt
The costs of credit card debt are more than just financial, too. If you’re deep in debt and barely making your minimum payments–or, worse, you’ve missed some and are subject to penalty interest–you are likely worried silly, suffering through sleepless nights and frequent arguments with your partner or spouse about where the money is going to come from. Credit card debt can take a toll on our personal lives in ways only folks living through it can imagine. If you’re sick of the suffering, it may be time to seek professional debt consolidation services.
Some companies may offer you loans as a way out of debt, but most credit relief specialists believe that the best way to escape the debt spiral is to negotiate a settlement directly with your creditors. Credit card debt relief can significantly reduce your outstanding balances and may result in a lower, more manageable interest rate. Remember, the credit card companies want to settle your debt just as much as you do. Fill out our easy and free debt analysis form or call today to learn about debt consolidation through settlement options from a dedicated credit relief professional!