We have all made the same errors. You are sick and tired of that sofa with the weird smell, or the TV that flakes out in the ninth inning. So, you take corrective action and go out and buy them with your credit card thinking, I will have this paid off in 3 months, no problem.

But on the way home, you also charge a pizza and 12 pack of beer. Then a week later, you stop for gas and dont have the cash on hand to fill it up, and that goes on the card as well. The following week there are a couple of smaller purchases that also go on the card, and when the statement comes, a $700 purchase has somehow ballooned into $978.

And this is exactly how people spend themselves into credit card balances that they can no longer afford to pay off in 3 months. Whats more, the moment that the purchases are made, the interest starts accruing on your balance, and that that meter never stops running until the balance is paid off.

Some Examples

StartingBalanceInterestRateMonthlyPaymentYearsToPayOffTotal InterestPaidTotal Cost

$500018%TheMinimum(2%)46$13,926$18,926

$500018%$1008$4311$9311

$500018%$2502$986$5986

This simple table gives you a good idea of what a $5000 balance will cost you over time if you only make the minimum payments. Heres another table that indicates what individual purchases will cost over time versus their original cost.

OriginalPriceInterestRateYears toPay OffTotalInterestPaidTotalCost

Television$50018%8$439$939

Sofa$100018%19$1899$2899

HomeTheater$250018%34$6281$8781

Both of these tables assume that no further purchases are put on the credit card, and that only the minimum payment is made each month. But, these generic examples give you a much better idea of what your costs over time truly are if you make the mistake of only paying the minimum.

What the Numbers Mean to You

When you pay the minimum, very little of that payment is applied to the principal balance and this is where credit card companies really get paid. They rely on the fact that a lot of consumers are not savvy about their money management, and make the same mistakes over and over and over again, thinking that next month they will start getting serious about paying off their credit cards.

Think about it. Would you agree to the terms of a mortgage with an 18% rate of interest?

Or, would you buy a pizza that originally cost $18, but then costs you $57 over time? Of course not. No matter how righteous that pizza is, there isnt a pizza in the world that you would pay $57 for.

But this is exactly what people all over the United States are doing to themselves every year. The latest numbers suggest that each American household carries $10,000 in credit card debt at an average interest rate of 18%.

And these are the average numbers! That means that there must be people out there, maybe next door to you, that are carrying balances of $15,000 or above, with interest rates at 24% or more!

What To Do About It

If you are dealing with credit card balances and interest rates like this, there are no easy answers. Its very easy to get yourself into a situation like this, and damned hard to get out of. It may take a few years of planning and financial discipline, but you can dig out of this mess.

Here are some recommendations:

Cut the cards up

Eliminate the temptation of adding to your credit card balance by cutting up your cards. You can only begin digging out of your financial problems if you are not adding to them.

Make sure that you always pay over the minimum

Understand that paying the minimum each month is really delaying the inevitable. Even if you are only able to pay an additional $25, every extra dollar over the minimum helps to pay down the principal balance and, in the long run, saves you money.

Get a part-time job in addition to your full-time employment

This is hard. Most of us have little time in our lives to do the things that we want to do, much less the things that we do not want to do. But, think about working a few hours a couple of nights during the week and maybe a day on the weekend as well. Make a bargain with yourself that each dollar earned at your part-time gig will go directly to paying off your credit card debt. It wont be easy, but a little sacrifice early in your plan will save you a lot of money down the road.

Seek the services of a credit counselor

This part can be tricky. There are a lot of shifty credit counselors out there whose sole purpose is to separate you from the little money that you have left over each month. They make a lot of wild promises of removing your credit card debt, but generally end up costing you even more money.

But, there are legit credit counselors that can give you sage advice at little or no cost if you look for them carefully. They can assist you in establishing and sticking to a budget, and help transfer your high interest balances to loans with a much more reasonable rate.

Trust your gut on this. When meeting with a credit counselor that asks you to sign something that you are not comfortable with, or says something that doesnt sound credible, walk away and look for another.