Well no, not that first. I was asking do you remember when you got your first credit card? The excitement you felt? The urge to go out and buy something on it right away? Did you take your friends or family out for dinner to celebrate or was your first card a store card, like mine?
When you got your first statement in, did you casually look over the amount owing and just fixate on the minimum payment required? Hey that isn’t too bad, is it? I can afford that! So did you do like I did and keep spending?
Then one day you realized that casually looking at the amount owing wasn’t going to work anymore – you can’t ignore it any longer. But what happened? You have been making the minimum payments, haven’t missed one, and you aren’t using the card that much so why doesn’t the amount owing get smaller?
That’s an easy question to answer. Very little of the minimum payment goes towards the principal debt; it is eaten up by interest. Interest is how the lending institutions make money and they are going to make sure they get as much as they can.
That doesn’t make the institutions evil – it means the consumer has to be smarter and take the time to really study their credit card statements. See how much of the minimum payment is going toward the principal then increase the amount you’re paying. You don’t have to be an economist or a math genius to understand everything.
Notice how much you are paying and how little the principal is reducing. There are also numerous calculators online that can help you figure it out. Take your financial future into your own hands and learn how to handle credit cards, how to read a statement and how to not be seduced by credit companies and their promises. You don’t have to get rid of them totally just be responsible.
Do you need a speaker about debt reduction? Contact Karen here.
Karen is profiled in our Celebrate Audacious Series