It's no secret that credit card debt is especially notorious.
First off, your spending gets away from you pretty quickly. So before you know it, you owe a few thousand. Then if someone can't or doesn't pay off the balance at the end of the month (and CardTrak reports that 60% of people don't), the fees and interest rates start to kick in. Don't get us started on the collector calls that will soon follow, or the stress it all brings into your life.
For now, let's stick to those interest rates. When you carry credit card debt month to month, you get charged interest according to the size of your balance. It's not uncommon for a percentage rate to climb into the 30s, but for this example, we won't even go there.
Let's say you have five credit cards with the following balances and interest rates:
That's $18,000 total owed on plastic. Doesn't sound horrible, right? But when you break the numbers down a little more, you'll discover that those balances are costing you $306 a month in interest charges! You don't get anything for that extra money. Mastercard, Visa and all the others simply charge you because they can—as if to say, "What are you going to do about it?"
If a guy walked into your house and said, "Start paying me $306 every month because I said so," would you do it? Of course not! So how is sending that money to the credit cards any different?
On top of that, paying on that credit card debt costs you time that could be spent growing your money. If you were to invest that $306 in a growth stock mutual fund over 35 years, it would be worth $1,967,873! If you make the minimum payment on all the cards based on 5% of each balance, it will take you almost 12 years (and $9,700 in total interest) to pay it all off.
Make the percentages work for you instead of against you. Start using the debt snowball to get out of credit card debt (and every other kind of debt, for that matter). Your future wealthy self will thank you for it later.
Want to join the conversation? Get started here.