Why You Should Pay Off Your Credit Card

2016-10-11   minute read

Jeane Herman

Credit Counselling

What is the balance owing on your credit card or cards? When you make a payment were does it go? Is it paying the interest or is it paying down the credit card?

Two people crunching numbers on a laptop with a notebook on the table

Do you have a bucket list, meaning things you want to do and don’t because you can’t afford it? Have you been using credit to cover off some of the things on your bucket list?

If I asked you if you do want an extra $2,000 a year in your pocket, would you say no? Let’s be honest, we could all use a few extra dollars each month.

To get those few extra dollars, it would really help to start by reviewing where your money is going. If you are carrying credit card debt, then more often than not, your money is going into the pocket of the bank as opposed to yours.

For instance, if you carry a balance of $12,000 on your credit card and only make minimum payments, your balance is not decreasing. The interest you pay over a year at an interest rate of 19% would be $2,280. If you continue to carry the same balance over five years, you are paying $11,400 in interest. The more debt you have, the more you are paying to the bank for the privilege of using their money.

Look at your credit card statement(s) and the amount of interest that is being charged. Credit card interest varies, cash advances are usually taken at a higher interest rate than purchases and the interest is calculated from the date the advance is taken. What is your monthly interest charge? Take that number and times it by twelve. That is what you can save once the credit card debt is paid off.

Most creditors request that a minimum monthly payment be made each month and we comply. Should we pay more than the required amount each month? Absolutely! Should we work on paying off the credit card in full? Most certainly! The short term pain of paying down the balance on your credit card will be returned in actual dollars once the debt is paid in full.

If you can’t see how you would ever pay off your credit cards, then you should seek help from a Licensed Insolvency Trustee, who is trained to help with debt and can work with you on a debt consolidation​ program.

Jeane Herman is a Licenced Insolvency Trustees within our Kelowna and Vernon locations. To learn more about how MNP Debt can help you, contact any of our local offices at:

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