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How You Trap Into Credit Card Debt
These days credit card or plastic money is very popular and used extensively. It is indeed of great utility if used in a calculative manner, but it is also the main cause that leads many people trap into credit card debt. Let see how it happen to most of people. Many of retailers are implementing easy payment scheme for their products or services, with some fraction amount of money for monthly installed, you can buy thousand of dollars of items or go for a luxury vacation which you can't afford to buy if one lump sum of money is needed, these monthly installment are automatically charge to your credit card. Every month, you just pay the minimum amount of your credit card balance and you continue spend on your credit card. Let use a case study to review on how a person credit card debt can grow and how it will take to get rid of it.
Case Study Scott earn $2,500 a month, he is holding a credit card with interest rates of 12%. All his credit cards allow him to pay a minimum of 3% or $10 which ever is higher. His credit card limit is $15,000. Scott's credit card balance at current month is $4,550 ($3000 in principle and $1550 interest). He tends to pay the minimum of his credit card balance and each month he will averagely swipe about $500 on petrol and other utilities.
Let see how's Scott's credit card balance grow: Month 1 Credit card balance = $4,550.00 Minimum Payment = $136.50 New Credit Card Spending = $500.00 New Balance = ($4,550 - $136.50 + $500.00) = $4913.50 Month 10 Credit card balance = $7976.02 Minimum Payment = $239.28 New Credit Card Spending = $500.00 New Balance = ($7976.
02 - $239.28 + $500.00) = $8236.74 Month 20 Credit card balance = $11109.85 Minimum Payment = $333.29 New Credit Card Spending = $500.00 New Balance = $11109.85 - $333.29 + $500.00) = $11276.
55 Month 30 Credit card balance = $13662.60 Minimum Payment = $409.88 New Credit Card Spending = $500.00 New Balance = $13662.60 - $409.88 + $500.00) = $13752.72 Month 36 Credit card balance = $14961.02 Minimum Payment = $448.83 New Credit Card Spending = $500.
00 New Balance = $14961.02 - $448.83 + $500.00) = $15012.19 If Scott continues his practice, his will hit his credit card limit after 36 month compare to current month. Let say Scott stop using his card with the balance at month 36 of $15012.19 and continue paying the monthly minimum. It will take him 228 months which equal to 19 years to just to pay off his $15012.19 debt.
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