Friday, February 26, 2010

By 

James W. Stone

The new rules for credit card companies were a long time coming. Now that the new rules are in effect, I want to point out a good way to make use of one of the most obvious changes. It's one you might overlook: Each credit card statement must tell you how long it will take to pay off your card balance if you only make minimum payments. Of course, that assumes you will not be making new charges on the card, and only make the minimum payments. Here's one great way to help drive you to paying that card off.

If you can qualify for a new credit card, or even a debit card, go ahead and get that new card. But you must promise yourself to pay off the card in full with every statement. That way you will not pay any interest on the purchases you make on that card. You can probably find a card that does not charge an annual fee. Usually, the annual fee is determined by your banks own rules about credit worthiness of the customer. So, maybe you won't find a credit card without an annual fee. Then look at the debit cards available to you.

By paying your new credit card off in full with every statement, you begin handling your money in a very responsible way. This card is to make it easier to shop and buy things you can afford to pay for now but will pay for them later when you get the statement for all your credit card spending. --i.e. card is a convenience not a loan

I recommend that you set up automatic payment for the full balance of your card statement from your checking account. Many banks offer this option. This practice does require that you have the money available in your checking account to cover the bill when it is paid. A debit card automatically takes the money out of your checking account with each purchase. The idea is to remember that either type card requires you to pay for the things you buy at the time you buy them, not to stretch out payments indefinitely into the future.

Okay, now that you have a new card established to handle new spending, freeze the spending on all your other cards. That’s right, absolutely no spending is to be done on your other cards. All your automatic charges for subscriptions, utilities, club dues, whatever – all of those charges need to be paid in some way other than using the card you are trying to pay off. Either pay for them with cash, or check, or transfer the automatic payment to your checking account or the new credit card. You are trying to accomplish two things: First, pay the current bills with money you have now. Second, quit using the old card(s) and pay them off.

If you're living within your means you can do this. Living within your means is all about not spending more money than you have coming in.

When the next statement for your credit card (or for each of your cards) arrives, look for that new message that tells you how long it will take you to pay off the card with minimum payments. Don't get depressed. Even if it tells you it will take five years, that is not forever. But that would be five years you would be making payments for things you have already purchased, or services and entertainment you have already enjoyed. From here on out, there is no enjoyment in these payments except the thought that some day they will be paid off. Your statement might give you an exact month and year when the payoff will be accomplished, or it might just tell you how many months of payments you still need to make. If your statement doesn't give you an exact month and year that the payoff happens, figure that out for yourself and write it on the part of the statement you keep.

As you look at that new message, remember they are calculating this for minimum payments. What happens if you make a payment that is larger than minimum? Surprise yourself! Make a payment that is half-again as much as the minimum payment. Instead of a $100 minimum payment, send them $150. Then look at the next statement you get. That extra money you paid will make a difference. Calculate the new date for when the total balance will be paid off. You'll see the date moving closer. When you pay more than the minimum, the payoff date moves closer to today. (Maybe you won't see the difference in the payoff date with only one monthly statement, but depending on how much more you pay, you will see the date move in two or three statements.)

I'm convinced this new information on every card statement will help many people realize the card can be paid off. If you practice the technique I have described, you will find it very satisfying to pay the card off faster than making minimum payments. I wish you success in your effort.

James W. Stone
(follow me at http://twitter.com/theJamesWStone)
Copyright 2010, James W. Stone, all rights reserved worldwide