You likely stumbled upon this article looking
for an online credit card payment calculator or for information about using a credit card payment calculator because you are looking
to calculate ways to pay off your credit card debt. There are many different
debt and credit card payment calculators out there but seeking one out at this
point may not make sense. Having too much credit card debt can present a big
problem and paying it off can be difficult. Assessing your true ability to pay
off your debt and estimating the time it will take to do so involve many
considerations.
Each credit card will have a different interest
rate, so unless you have the ability to use a single credit product to pay off
all of your credit cards, in essence consolidating your debt, you may find
using a credit card repayment calculator inaccurate because of the varying
interest rates and credit terms.
Consider using the credit card payment calculator that exists in your own head. Here are some very
simple credit card payment calculations that you can use to get an idea of how
long it will take you to pay off your credit card debt.
How much would it cost you per/month to pay off
your existing debt over 4 years at 0% interest? Take your total debt and divide
it by 48. E.g. $20,000 debt divided by 48 months would mean it would cost you
$416 per/mo. to pay off your debt at 0% interest over 48 months. Now that you
know this number, let's look at the interest rates you are paying on your
credit cards.
Interest rates on credit cards generally range
from prime to $29% (Lines of credit are usually prime to 10%, regular credit
cards from 15%-23%, department, furniture and department store credit cards are
usually from 24%-29%). Credit card interest compounds monthly which means that
each month, one month’s interest is applied to the bill.
The biggest problem with credit card interest
and paying off credit card debt is the amount and frequency of the interest
coupled with the fact that minimum monthly payments are set very low, usually
1% to 3% of the credit card balance. You will notice that banks will now tell
you on your bill the number of months it will take you to pay off your credit
card debt. I had a client show me a credit card statement for a Visa with a
19.9% interest rate which indicated that it would take the client 96 months to
pay it off at the minimum payments.
Here’s why. If you took that same $20,000
credit card debt in our first example and made it a single product at 19.9%
interest, your minimum monthly payment would likely be $200-$300 per/mo. To
calculate the monthly interest that would be applied to the credit card, all we
have to do is take the interest rate of 19.9% and divide it by 12 months
(remember it compounds monthly). In our example, that would make the monthly
interest 1.66%. Now multiply the $20,000 by the 1.66% and presto, the monthly
interest would be $320. That means on your monthly billing date $320 would be
added to the credit card, making the balance $20,320. Even if you make a $300
payment, you owe more than you started with, which is why credit cards are so
difficult to pay off. To pay off credit card debt in a reasonable time period
you would have to double or triple your minimum payments.
Before playing around with the numbers using a credit card payment calculator take a step back and be
realistic about your situation. How much money can you apply in addition to
minimum monthly payments? Is it realistic that you will be able to pay off your
credit card debt without restructuring it? Are you finding it difficult now to
even manage your minimum payments?
Figuring out how to deal with credit card debt
will involve closely analyzing your budget, cash flow and resources to come up
with a solution. There are some debt restructuring programs available that can
freeze or even reduce the amount of debt you owe and offer you a single monthly
payment. The best thing that you can do is seek out financial counselling if
you are struggling with a financial problem. By working with a financial
specialist who focuses on debt consolidation and financial restructuring you
can access the programs and resources that are available to help you get out of
credit card debt.
If you would still like to use a credit card payment calculator, click here to use
DebtCare Canada’s online credit card payment calculator. If you have a
financial problem and need help, please contact DebtCare at 416-907-2582 or
visit www.debtcare.ca.
