How To Eliminate Credit Card Debt Forever – Step 1

Step 1: Know how much credit card debt costs and how much it is holding you back.

In my previous post, the first in this series, we looked at the real implications of being free from credit card debt. I hope this helped to fuel your motivation to make a positive change in your life.

If you are reading this you probably already know that credit cards, and debt in general, are holding you back financially. But looking at a couple of examples, with actual numbers, may help to reinforce your conviction to change your financial habits, to eliminate credit card debt forever.

Do you think you can’t live without that $1000 50” plasma TV? It’s so easy and painless to pull out a credit card and charge it. Before you know it you’ve got a beautiful new toy.

But the real question is not whether you can live without it, but whether you can live with it. What is it really going to cost you?

If your credit card is at 18% and you pay $20 monthly, you’ll be paying for that TV for 7 years and 7 months. You’ll pay over $1,800 before you’re through. At an interest rate of 28% and a minimum monthly payment of $25 you’ll be paying for that TV for 17 years and 1 month. You’ll pay a total of $4,330.

What if the clerk in the store told you, “You can have this $1000 TV for $4330.” Would you still buy it?

A favorite trick of many stores is to offer, “no payments and no interest for 1 year”. Read the fine print! Typically the catch is that when the one year runs out you get charged interest from the day you bought it. Suddenly one full year of interest is added to your account in one day.

It’s easy to be more cautious about the big purchases. But what about all the little purchases? Do you go out for dinner once a week? A modest dinner for two, even without a glass of wine, can easily run you $40 or more. Do you put it on a credit card? Over the course of a year you will have added $2080 to your credit card balance. If you pay the minimum each month and continue using your card for meals out you will NEVER pay it off. You will remain in debt for life.

Now that we’ve seen what credit card debt is really costing you. Let’s take a quick look at some examples of how much it could be holding you back.

Are you in your mid-20s, recently out of college, with a couple of maxed out credit cards that helped you pay your way through school? Well, you’ve got a good 40 years of productive work life ahead of you. You may think it is too early to be planning for retirement. But look at how eliminating that credit card debt could change your life.

Perhaps your interest charges are only $25 a month. That doesn’t seem like much, does it? Well, suppose that instead of that $25 a month going to the profit margin of some bank you had no credit card debt and that $25 a month was directly deposited in a retirement account. It would make absolutely no difference to your monthly cash flow. You wouldn’t feel a change at all. But that $25 stashed away each month, invested tax free at 10%, at the end of 40 years, would give you nearly $160,000 and an annual income of $16,000.

If you’re 20 years away from retirement you would still have nearly $19,000 of essentially free money.

What if you are in your 20s and your credit card payment is $100? At the end of 40 years you would have $630,650 stashed away, earning you an annual income of $63,065, enough to support a very comfortable retirement in most parts of the world.