Understanding the Trappings of Credit Cards

Let me tell you why most people try to pay off their smaller debt rather than paying off their larger debt.

The temptation of minimum payments

People that are in debt look at a large debt like a mortgage, where they are paying on a home for 30 years with a drastically low-interest percent. This type of debt is not costing them any more interest than they have already signed up for. A credit card interest percent, on the other hand, is based on how much you have used on the credit, and what you have taken out as far as cash. This amount is recalculated every month on a new balance statement. People that only pay the minimum payment, and have no more purchases accounted for, pay what they are told by the credit agency as the minimum payment allows. This minimum payment only allows the credit agency to accumulate more interest and a longer payoff date for the customer. Consumers today are not factoring in how long the payoff date might be pushed forward, but rather pay the minimum payment amount. When consumers see the minimum payment amount is so small, they’re amazed and think it’s better to spend more on the card rather than to pay more and pay the card off.

Pay down your large debt first

People are okay paying a high price on a house to keep it, but paying off the loan is a better way of getting out of debt faster. If you pay more on your house, you’re decreasing the amount of time you really have to pay the house off, and you lower your interest by almost half. In most cases, this could knock 10-15 years off your house payment. If you were to double your monthly payment, debt decreases faster. When the house is paid off, the smaller debt is going to be a breeze to pay off.

As we go through life, sometimes we find it hard to make two times the mortgage payment; this is where most people get stuck in “too much debt.” Most credit card interest percents are too high to even gamble taking the card. The percentages range from a low of 7%, if you’re lucky, to a whopping 30+%. With these interest rates, you would think that people would want to pay their larger debt down first.  The low minimum payment of those types of loans are causing people to think it’s a great payment amount for the amount they borrowed from the credit card company.

Use credit wisely to get low interest rates

Most Americans have sacrificed most of their lives just to pay off their credit card debt. The more people are educated about how credit cards can hurt them or help them, will benefit them when they are looking for a credit card company to use for their future purchases. The best way to get better percentages on credit card usages is to use credit wisely, and in very small amounts that can be paid off within the first year of the card. This helps the credit agencies determine your worthiness in the market to pay off your credit within a reasonable time. This process allows the credit agencies to re-evaluate you as a credit user, and start giving you a higher balance and a stronger or lower percentage rate on the amount you owe. If you’re just starting out using credit cards for the first time, or a regular user, you should have a better understanding of the purpose of a credit card, and how using credit cards in a manner which helps you.

Make sure you’re the first to get our newest interviews, resources and tips by subscribing to the newsletter!