Some consumers in New Jersey may have questions about how to manage their credit card debt. A recent article discusses a way that might help a person pay off his or her outstanding balances over time as quickly as possible.
Often, some individuals may try to pay off their balances by making the monthly minimum payments. This can be a mistake, however, because as those payments decrease as the size of the principal decreases. The article suggest that a minimum payment is equal to the amount of interest earned in the preceding billing period in addition to 1 percent of the total balance. If a consumer pays off only that amount every month, the amount of time it takes to pay off the debt can be extended for several years. This also has the effect of increasing the total amount paid on the debt, because the longer period results in additional interest accumulation.
A better strategy might be to maintain paying the current monthly minimum. For example, if the consumer is able to afford to pay the minimum payment of $1,500, he or she should continue paying that amount in subsequent months even though the actual minimum requirement will drop over time. This can drastically reduce the amount of time the consumer spends making payments and might also result in savings on the amount paid due to interest.
While this strategy might benefit some consumers, other individuals may not be able to afford their current minimum monthly payments. However, in an effort to avoid defaulting on the debts or being named as a defendant in a lawsuit by a creditor, the consumer might file for bankruptcy protections. This may result in a discharge of some of the debts and might offer consumers a way to begin rebuilding their finances.
Source: FOX Business, "Fastest Way to Pay Down $50K Credit Card Debt", Steve Bucci, September 19, 2014