Credit Card Debt – What the banks aren’t telling you and how to save yourself thousands and thousands of dollars of your hard earned CASH!
Credit Card companies are lying by omission – this quite simply means what they are NOT telling could be costing you many tens of thousands of dollars over the time it takes to pay off your credit card…
YES – this is going to be another Light bulb moment for many of you, it most certainly was for me when i worked out the following figures.
I am the Founder and CEO of Mortgage Now, Australia’s largest exclusively non conforming Mortgage Broker. I also am associated with a number of other businesses that also specialise in getting struggling Aussies out of financial trouble.
I recently employed a GURU in one of the associated businesses. He came to me at the start of this week and asked if i had a calculator that could accurately predict how long it would take to pay off the entire debt on a standard credit card. I said that I didn’t and that I hadn’t seen one but I could create one if he needed it. ( I like to think I am a bit of a GURU myself when it comes to using EXCEL).
I set to work and spent a few hours researching how the average credit card company charge its interest, fees and charges. What I learned was that there is no real ‘average’. so I created a standard model that is somewhere in the middle. (This means that any figures calculated could be a lot worse if you have a card above this standard model)
As the creditcard companies all levy fees and charges in different ways, I have not even included these fees. All I have calculated is the spiraling interest rates… and they are seriousy out of control..
OK, for a starting point, lets presume credit card companies are charging some where between 17% and 27% interest (August 2008).
John and Betty have 2 credit cards, are paying of a small car, have a store card, and an 12 month interest free card. They are renting and the rent has just gone up by $25 per week.
Food prices have gone up dramatically in the last 12 months. John works full time and Betty works part time during the day when the 2 kids are in primary school. John catches the train so Betty can have the car to pick up the kids from school each day. Did i mention that petrol costs have almost doubled in the last 2 years..
As you can imagine, things are a little tough for John and Betty and looking at getting even worse. John thought he’d do the right thing and contact one of his credit card companies and have a chat.. He has been finding it hard to keep up all of the payments and has fallen behind occasionally and been hit with late fees and charges. This just makes it worse.. John called his credit card company and made an arrangement to pay off the card at a reduced amount each month, (at least he’s still paying right? hmmm… you be the judge).
The new payment amount is just 2% of the monthly amount which comes to $200 per month.. John thinks this will give him a little breathing space, and short term he is right… BUT……
If John is paying off his credit card at 2% of the monthly balance, it would mean in the simplest terms, that John is paying off his credit card at 24% per year.
Almost the annual interest of 25%, this means he is behind the eight ball by 1% before we get started. But wait, it gets worse.. Interest is calculated daily on the daily balance, which means more money to the Creditcard company. Then there’s the late fees and charges etc..
It gets worse, much much worse…
I did a calculation where the client told us they had a $7,000.00 credit card debt and they had arranged to repay it at $40 per month.
My Calculator ran out of lines at 1090 months and the figures were staggering.. almost beyond belief.
Just to give you and idea even if the credit card was only 24% or 2% Per month, this debt would have spiralled out of control to a debt of more than $18,000 in 5 years plus all of the late fees etc, and this is if you have made every payment that you agreed to make. ($40 per month).
Thankfully, we were able to help this client and we saved them a little over $88,000 in interest, but i was shocked to say the least. I have been in finance for a long time and I had never worked out how much credit cards actually cost. This was a real eye opener for me.
As a service, I am giving away a FREE credit card interest assessment, valued at $197 to the first 100 clients that call my office and mention this offer.
I will personally (yes me, I will do it personally) look through your details and run the calculators and show you how much interest you are likely to pay and what your options are and if you qualify for our services.
I will email you your results within 7 days FREE of charge. But this offer is only open to the first 100 clients. (it takes too much time to do any more than this). Please make sure you mention this offer to get the Free Assessment.
If you would like to work out the figures for yourself, try this as a guide, you will get the idea
Int% / 365 * [days in month] * balance + balance – repay = new balance (then start again)
Please be aware of your interest rates and make the largest payment you can to reduce the balance… it will save you buckets of interest.
I am Graham Doessel and this has been my comment
Graham can be contacted at Mortgage Now,
246 Stafford Road, Stafford, Qld. 4053
or call TOLL FREE 1300 667-239
Graham built Mortgage Now from the ground up to become the largest non conforming Mortgage Broker in Australia in under 5 years.
Graham now has 11 different businesses that all focus on helping people in trouble.
Grahams latest project is the development of The Now Foundation, a self funded charity focusing on the little things we can do to improve our lives in big ways.