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Quicksand: Debt's impact on budgeting
By Susan Powell

Do you ever find yourself quietly pondering where it is exactly
your money goes? Or, do you find yourself constantly struggling
to save money and get ahead in spite of perfecting your budget
and cutting back on spending? If you're struggling with money
and credit cards are a part of your spending strategy, it's time
to look at how your debt-load could be crippling your efforts to
budget and save.

Think of these simple costs to use a credit card:


Balance
Interest
Cost

$2000
10%
$200/year

$5000
10%
$500/year

$10,000
10%
$1,000/year

$20,000
10%
$2,000/year

Typical interest rates range from 8% too 14.9%, with penalty
increases that can send your APR into the 23-26% range. Let's
double the interest rate to look at how a higher interest rate
affects your debt-load:


Balance
Interest
Cost

$2000
20%
$400/year

$5000
20%
$1000/year

$10,000
20%
$2,000/year

$20,000
20%
$4,000/year


Being in debt can cost thousands of dollars a year. Factor in
Multiple credit cards and you can see how the cost of being in
debt can keep you in debt. It's a maddening cycle and one many
don't understand until too late.

With the cost of being in debt so high, it's important to
understand how credit cards work. Many people do not comprehend
the impact of interest until they're swimming in it. The amount
of interest you pay every month is based on your balance. The
higher the balance, the more you pay in interest. Interest is
added to your balance, which drives up the number that determines
your interest payment for the next month. Add on penalty fees,
and you can see how interest and penalties perpetuate your
debt-load.

Let's talk minimum payments for a moment. If you're carrying a
significant balance and paying a higher interest rate, you've
probably seen your minimum payments double or triple from where
they once were. Making the minimum prolongs the life and size of
your debt-load because this small payment does little to decrease
your balance and subsequently, the size of your interest payments
every month.

Minimum payments alone can cost you hundreds, thousands of
dollars a month. It's the unpredictable and expensive minimum
payments that can quickly deplete your extra money, crippling
your efforts at budgeting and saving. Additionally, when minimum
payments are on the high end, it becomes difficult to pay more
than the bare minimum, which increases the difficulty to
aggressively reduce your balance and further prolonging the life
and size of your debt-load.

When it comes to your money, don't overlook how your credit
cards could be hindering your efforts to budget and save. The
credit trap can be like stepping in quicksand: Easy to sink, hard
to get a grasp and difficult to get out. This year, look at
decreasing your credit card balances when you're perfecting the
budget and maybe your next budget will allow you to save and get
ahead once and for all!

________________________________________________________________________
___
ABOUT THE AUTHOR: Addressing issues of predatory lending, Susan
Powell is a debt prevention/financial literacy expert and author
of the new book, "Credit Card Debt: It Can Cost You Your Life".
She frequently writes and speaks on the subject. Visit her online
and follow her newly launched webBLOG at www.DontDoDebt.com.




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