RebelCapitalist: Financial Information for the Rest of Us

Credit Card Debt = Hot Potato

Feb 14, 2009 | By: Mr_Blue | Comments | Permalink | Tags: credit cards, debt management

I have called credit card debt evil. My main point is that we have to change the way we think about debt particularly credit card debt. We often fall victim to the idea that credit cards are convenient and an easy way to satisfy a spending urge. This idea often overrides the fact that we have to pay the debt back. Remember that childhood game “Hot Potato”. Credit card debt is like the game “Hot Potato”. You don’t want to hold/carry it for too long or you are going to get burned.

I believe people are starting to shed debt because of current economic crisis. I am trying to find statistics to support that claim. But just talking with people I believe this is the case. We should continue to pay down our debts because we have been swimming in it.

Today, many people are experiencing the financial cost and risks of carrying huge credit card balances. Credit card late payments and defaults are increasing as people struggle to cover living expenses and pay-off accumulated debt. We are learning the hard way that there is a heavy cost to carry credit card balances.

The most important thing to remember is that paying the “minimum monthly payment” is going to make only a very small dent in the balance. Most of the “minimum monthly payment” consists of finance charges (interest costs). If you are carrying balances on multiple credit cards, obviously if you can afford to pay-off the balance on any of them please do so. If not, then concentrate payments on the credit card with the highest finance charge or Annual Percentage Rate (APR) but pay the “minimum monthly payment” on the others. Start eliminating the balances on the highest cost credit cards. But, this assumes that you stop using the credit cards - this is absolutely important.

We have to remember that game “Hot Potato” and get rid of these credit card balances as quickly as possible.