Credit has never been easier to get.
We are bombarded with offers every day – no interest on credit card balance transfers, interest free finance for household furniture, big screen TVs and appliances and low low rates to buy that new car.
It’s no accident that just after Christmas, your friendly bank starts peppering the media with offers of interest free periods on balance transfers. This is crisis time for many people. The cards have been maxed out to have a good Christmas and the debt hangover is just starting to hit. The first post Christmas payments loom and there is no cash to pay them.
The no interest option on the credit card balance transfer seems like a godsend and is eagerly embraced, but all it is doing is kicking the stinking debt further down the road of reckoning. When it comes time to start paying interest at rates at between 19 – 21%, there is still no cash, and the debt is kicked further down the road by getting more cards and doing the debt shuffle.
The Debt Shuffle
The debt shuffle is getting Cash advances drawn against remaining balances to make the minimum payments on other cards and for other monthly payments. This is where the fees and charges become turbo-charged. High fees apply to get the cash advance and interest rates kick in immediately at 21%+ calculated daily.
Effective Rates over 50% on cash advances
The fees and charges on cash advances deter you from repaying if you may need to redraw and get hit with the fees again. Cash advance fees mean that the effective interest rate on cash advances is very high. If you were to get a cash advance of $10,000 on a credit card the usual fees are around 3% being $300 and interest in the advance of 22%. If that advance were repaid after one month the fees and interest paid would be $483. The effective interest rate being a massive 57.96%. The usurious rates charged by the banks can’t be hidden behind the smug self-congratulatory smiles of their over-paid CEO’s.
91 years to repay
The true horror story of credit cards is that making the minimum payment on the card, means that the debt is unlikely to ever be repaid. When you are 50 you could still be paying for that trip to the US you took when you were 25, if you only make the minimum payment.
Actual numbers: On a credit card debt of $37,809 making the minimum repayment it would take 91 years and 3 months to repay the debt. Interest charged would be a massive $181,292.
What Next? Just do it.
Many people in a debt crisis suffer form paralysis by analysis. They will read endlessly about what to do or simply shut off. There are solutions. You can be debt free, you can take back your life and you do not need to go bankrupt.