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Use Government Rebate Check to Pay Off Credit Card Debt
Years of easy credit and easy loans finally caught up with bankers and consumers and blew up into the current credit crisis that dramatically affects mortgages, credit cards and other loans.
Now the government is trying to jump in and save the day. Following a significant Federal Reserve interest rate cut, Congress is rushing to pass their own stimulus package. The checks will be in mailboxes by June, and their goal is for this money to be spent back into the economy.
While anyone will be glad to receive this check, there is a much better way for consumers to use this money. Instead of using it to buy more goods, consumers with any credit card debt should use all of this money to pay down that credit card debt. This is a great way to jumpstart your financial plan. Once you pay off your debt, then you will be able to buy what you can actually afford without using a credit card loan and paying extremely high interest penalties. This is the responsible way to stimulate the economy.
The average household has $8,000 in credit card debt. Assuming that the average APR on this credit card debt is 14% and only the minimum payment of 2.5% of your balance (initially a $200 payment) is made each month, then it will take the average household 278 months (23 years) to pay off that balance and it will cost $6,792 in interest.
If you use your $1,200 to lower the balance to $6,800, and you resolve to continue to pay $200 for the monthly payment, it will take only 3.7 years and cost $1,913 in interest payments.
That $1,200 check and the resolution to pay $200 monthly will save you $4,879 in interest payments and you will be out of credit card debt 20 years ahead of time. That will completely change that consumer's financial situation and have a tremendous effect on the economy in the long run. This is not only a prudent financial move, but it will also build a healthy economy for the future.
Not only will a consumer save money by paying less for credit card interest, but also there could be a ripple effect that might mean lower rates for other loans. Paying down your credit card debt and lowering your debt utilization ratio will eventually raise your credit score. After your score improves, you can ask for lower rates from other creditors.
Bill Hardekopf is CEO of LowCards.com (www.lowcards.com) a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards/rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card, making it easy for consumers to compare more than 150 credit card offers and apply securely online. It provides advice about credit card and debt issues, news, and credit card updates. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for over seven years. For more information, contact Bill Hardekopf at 1-800-388-1910 or billh @LowCards.com.
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