It really is freeing to write so openly about one's money. The stigma of moneytalk is one of the things that make it so easy for married couples to avoid discussing it. We all have experiences and baggage wrapped up in our feelings about money, and these feelings definitely contribute to the way we handle it.
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| Just imagine this hanging over your dining room table. |
This public declaration of our state of fiscal emergency is like having a huge whiteboard in our apartment, with ideas and problems and solutions scribbled all over it, reminding us of our current situation and encouraging us on to find the solution. It's like having one of those fund-raising thermometers tacked up in our living room. (By the way - if anybody has a good link to one of those gadgets we would love to use one on our blog to show our progress, but we can't find one anywhere.)
As we check off more boxes, I find myself getting more frustrated about the biggest danger of credit card debt: interest payments.
Last month we paid $87.54 just for the pleasure of being in debt to these credit card companies. $87.54! And we are paying far less interest than the average consumer, thanks to low-interest cards and an interest-free introductory period whose end is approaching quickly. According to indexcreditcards.com, the average credit card interest rate for October 2010 is 16.75%, so for an average borrower in our position, they would be paying $4,020 a year, or $335 a month! And this is assuming no fees, fines, compounded interest or other dangers.
This is where the dreaded "snowball effect" comes into play, and can swamp families that aren't prepared. It is most frustrating to me, knowing that each month of interest payments is another box we can't check yet.
Our plan: Know our interest rates. I have made a list of all the various interest rates, and will be paying off the high rates first. Transferring balances to introductory rate cards if possible can be helpful, as often this original fee will only equal what one month of interest payments would cost you, and you will save money over the rest of that interest-free period.
-Jack
Compound interest is an absolute bast**d.. BUT it works both ways.
ReplyDeleteOf course you are doing exactly the right thing, sorting the debt into catagories by highest rate and paying that off first.
One small suggestion I would also make that will speed things up a bit AND reduce the amount you pay..
Send whatever you can afford to pay.. but do it immediately !
What I mean is, is you sell something on e bay today, don't wait to the end of the month to pay it off a card. Credit Card interest is calculated DAILY. If you pay the debt down sooner that less interest they can charge you.
It's the same principle as making mortgage payments fortnightly instead of monthly.
[Oops.. Sorry I forget I'm English and speaking another language.. fortnightly means every two weeks.. ;o)]
You are effectively denying them the chance to charge you interest [on that bit of money that you've sent them] for the rest of the month.
On a typical 30 year mortgage, it can save thousands of dollars if you do it that way.
But it works just the same on CC debt.
So there you have it... Compound interest in reverse !! Lovely jubbly.
Jo xx
Thank you! I think that I knew that in the back of my mind somewhere but it hasn't always translated into prompt payments!
ReplyDeleteI will apply this knowledge to my financial timing forthwith and let the credit card companies watch their backs!
(And I'll certainly remember it once we get a mortgage some day.)