Credit Debt Reaches All Time Highs
By Ben Adder on September 3, 2010, 5:11 pm
Credit debt is skyrocketing. It is estimated by the Federal Reserve that, as of June this year, Americans have about $827 billion in revolving credit, and most of that is credit card debt. Although this is a staggering amount of money, it does not reflect the average amount of debt each person has. However a little time understanding what this means can only help to eliminate this burden.
Credit card customers usually look for the best credit card rates however they may not realize why interest rates are set at a particular rate nor how much difference a lower rate would mean to them.
Some credit card companies offer a low introductory APR- Annual Percentage Rate – for new customers as an incentive. This can be a blessing in disguise as consumers rack up very low interest debt only to be faced with a rude awakening when the interest rate starts ballooning. This is a large part of the cause of our recent national economic woes.
Credit card companies start charging interest after a balance is outstanding for one or more billing cycles. To avoid paying interest, credit card balances should be paid every month and on or before the due date. .
Credit card companies usually charge one rate for purchases and a different rate for balance transfers and another rate for cash advances. Plus there are usually many other charges. For instance, there could be charges when 60 days late paying your existing balance.
Consumers should watch the interest rates being charged by credit card companies as this rate dramatically effects the monthly payment. EG, if you have a credit card with a balance of $2,000 at 18% interest and pay $50 per month towards that balance, you will pay $339 in interest alone over a 12 month period. If you can transfer that balance to a credit card with 9% interest, you will pay $162 in interest and save $177 over that 12 month period. The savings in interest could pay for 3.5 months of your monthly payments.
The surest way to pay the lowest interest rates on credit card balances is to maintain a high credit score. Credit card companies typically offer their best rates to the most creditworthy customers. But if you are burdened by credit card debt, first call your credit card company. They will often reduce the amount of interest they are charging and so give some relief.