Despite what the media would have you believe, the majority of Americans are facing a losing battle against steadily increasing prices. Not only are their wages stagnant—and essentially falling due to inflation—their 401(k)s are shrinking and an economy in the doldrums has all but made economic opportunity a seeming fantasy.
Unsurprisingly, many American consumers have turned to credit cards, personal credit lines, hospital financing and other loans to decrease the fiscal pressure bearing down on them.
This credit is debt—but responsibly managed, it is an efficient way to cope with the financial realities of today’s economic world. Unfortunately, with so many priorities fighting for headspace, it can be tough to ensure that you are on top of your obligations. Simply put, if your expenses are more than your income, it is only a matter of time before the house of cards comes crashing down.
If you are suffering from debt, it is vital to recognize that you need to take action in order to become solvent again. There is no shame in debt: a sudden illness or job loss can cause real credit issues where the fault does not lie with you. What you need to know is that you do have options.
Perhaps you’ve looked at your Minimum Payment Plan (MPP) and crossed your fingers. It’s the easiest way, right? Not quite.
By United States law, all credit card issuers must offer a MPP, calculated on the total balance and interest rate of your account, along with some other elements—and the results can be surprisingly low.
For example, if you have a balance of $7,000 on one card, your MPP could be as low as $125 a month. For many, that is a manageable payment—but there is a catch.
That catch is that the interest rates that will bleed you dry. That $7,000 balance may come with a 19% interest rate, totaling an incredible [$10,326.14] in payments for the interest alone. If you think that’s bad enough, how about interest rates of 21% and more?
An MPP looks good on paper, but the reality is very different.
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In fact, that is only a part of the story, as these rates are only for people who cease using their credit cards. If you continue to use them, that financial hole keeps digging itself.
There is one silver lining here: recent changes to consumer protection laws now mean that credit card issuers are compelled to tell you exactly how long your MPP term will be.
You can see for yourself when your next bill lands at your doorstep—look for a boxed area which will have a phrase such as “a minimum payment on this balance means that it will take X years and Y dollars to pay off your balance”. For many, this is a real eye-opener.