Credit cards can be an invaluable tool for helping you make large purchases or manage a crisis. If not managed carefully, however, they can actually lead you down into a debt spiral from which you may never recover. What many people may not realize is that when you pay for things with credit cards, you actually end up paying more for them than you would if you used cash or a debit card.
WHY DOES CREDIT CARD DEBT MAKE EVERYTHING MORE EXPENSIVE?
A credit card is a tool that you use to access a line of credit, which is essentially a loan. Your credit limit determines how large of a “loan” you can take out and your interest rate determines how much you will pay over time. Because the interest on credit card debt compounds, the longer you take to pay off the loan and the higher your interest rate is, the more you will end up paying. If you pay off your credit cards every month, then you are essentially taking out a loan for less than 30 days which means you will not pay any interest.
On the other hand, if you bought an item that cost $1,000 on a credit card with a 25% interest rate and took a year to pay it off, then by the time it is paid for you will have paid an extra $140 for the item. That may not be so bad if you only buy one item, but many people carry thousands of dollars in credit card debt, which means they are paying significantly more for the same items as someone who pays off their credit cards every month. This is why letting Interstate Associates help you get out of debt is so important.
CREDIT CARD DEBT ALSO AFFECTS YOUR CREDIT SCORE
When you carry a great deal of debt, it also has a negative effect on your credit. This can make it difficult to get low-interest rate loans, which means once again you end up paying more for things. For instance, if a person with good credit buys a $20,000 car, they may qualify for a 4% loan. If they pay off the loan in 60 months, then they will only pay about $2,100 in interest, which brings the total amount they will pay for the car to $22,100.
If a person with poor credit tries to buy the same car, they may have to pay up to 18% interest for the same loan. If they take the same 60 months to pay off the exact same car, they will end up paying almost $10,500 just in interest alone. That means they will pay $30,500 for the exact same car that the person with good credit bought for $22,100.
Having to pay more for things also has a cumulative effect. For instance, the person with good credit will only make about a $370 car payment each month. The person with bad credit will have to pay about $510 per month for the same car. If both individuals make $2,000 a month, then the person with good credit will have an extra $140 to spend every month after they make their car payment on the exact same car. Keep in mind, bad credit also affects the cost of other things, such as insurance, so not only will the person with bad credit pay more for the same car, but they will also have to shell out more money every month for insurance as well.
Getting out of debt can be a long, painful process, but Interstate Associates can help