Scissors & Credit Cards..a perfect match
Posted on June 11, 2010
Filed Under Bankruptcy, Credit, Debt Relief | Leave a Comment
There isn’t a better feeling than knowing you have all your bills paid and you have been successful with your efforts at credit report repair. Living with bad credit is exhausting and in today’s economy the difficulty grows by leaps and bounds .
If you’ve already looked into some ways to clean up your credit, congratulations. For those of you who haven’t yet taken the first steps toward better financial health these words are tailor made for you and your attention to the facts about better credit scores will save you wheel barrels full of money.
There are always skeptics in the audience. Try this elementary brief calculation of the money you literally throw away with paying higher interest rates.
2 credit cards are issued to two different consumers. One consumer has a credit report score above 700 and the other person, less fortunate has a lower credit score of 620. In this economic market a 700 credit score is better than average, but not great , nothing to get too excited about and a 620 is considered risky for a lender, but many people fall into this catagory.
Both borrowers will get credit though. One will be risky and to insure the lenders risk, they will charge a higher rate. Borrower number one is more stable in the world of credit and may not get the best rate, but will surely get a reduced rate for that card.
The 700 score gets a credit card with 14.9% interest rate attached to it. The ceiling on charges will be set at $10,000.
The lower score will be issued a card with a rate of 29% and the bank will allow an initial ceiling of $8000. Surprised? Don’t be. This is the new world of finance.
In my example, both of these card holders need to help finance their kids education as well as pay for some doctor bills that have surprised them . Both need this cash , fast money and they need it now , but each intends to pay back the debt within a year. Do you think they can do that? Let’s see what interest rates do to our calculations.
The 700 borrower uses $8000 of his total allotment in the initial months. What are his payments and how long will it take to repay the debt at 14.9% interest rate?
According to the Debt Dog credit card calculator that I have on my iphone, I can tell you that it will take 200 months at a minimum payment of $259. Total payments will be nearly $13,000. About $5,000 just in interest payments for the privilege to charge.
Our second borrower also uses $8000 in a hurry. At 29% interest rate, a real interest rate, I’m sorry to say , this individual will have to pay $353 per month for 209 months and the total is , ready for this?–Ouch…$17,500.
200 months is 16 years and 209 months is 17.5 years. What could be so important that you have to finance it with credit card debt to make you pay for 16 or 17 years? This is a lifetime for some .
The buyer with higher interest rates due to lower credit scores will pay an additional $4500 only because of lower credit scores.
Does this open your eyes to the fact that these credit score numbers are important? Can you see that your inability to increase your credit scores is gong to affect every aspect of your life?
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