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Credit card calculators can make you a better money manager

by Peter Andrew

Think that credit card calculators are dull and strictly for the geeks? Well, think again. They can be incredibly useful for nice, normal people like you.

In fact, the only cardholders who are unlikely ever to find one of these calculators helpful are those who never carry forward a balance at the end of a billing cycle. That's because they never need to ask themselves: "How much interest am I paying?" or "How many months is it going to take me to pay off this card?" The answer's always none.

Credit card calculators--a choice

For the rest of us, IndexCreditCards.com has no fewer than four different credit card calculators. These answer the key questions:

Calculator No. 1:
How long will it take to pay off my credit card?

Calculator No. 2:
How much should I pay each month to get my credit card paid off?

Calculator No. 3:
How much could I save with a lower interest credit card?

Calculator No. 4:
How much interest am I paying when I revolve my credit card balances?

When times are good

If you're currently comfortable with your level of credit card debt, then calculators could help you to optimize the amount you pay in interest. Calculator No. 4 (How much interest am I paying … ?) can turn that dry annual percentage rate (APR) that appears on your card statement into the dollar amount you are going to pay on your particular balance over a period you can choose.

And that sum might prompt you to consider switching to low interest credit cards or perhaps balance transfer credit cards. That's where calculator No. 3 comes in. It allows you to see how much you could save (again in dollars) were you to make that switch.

Right now, credit card interest rates are relatively high. With the economic outlook uncertain, and the possibility that those rates could rise even further, you may wish to reduce your credit card debt while the going's good. That's when calculator No. 2 could be useful. It can tell you how much you need to pay each month in order to zero your balance over a period you can select.

When times are challenging

Recently, your blogger wrote an IndexCreditCards.com feature article, 6 steps to wipe out your credit card debt, that provided practical advice for those who are struggling to keep on top of their commitments. It began by explaining how easy it is to be overwhelmed by feelings of helplessness and hopelessness that can lead to both inertia and a head-in-the-sand denial of the problem. Understandable though that is, it's actually highly counterproductive, not least because worries get bottled up and just lead to ever-greater stress.

Of course, there are many more differences than similarities between unmanageable credit card debt and alcohol or other addictions. But bowdlerized versions of at least three of Alcoholic Anonymous's famous 12 steps can be useful:

  1. Admit you have a problem
  2. Make a searching and fearless inventory of all you owe
  3. Set about making amends to those in whose debt you are

It's in that third step that credit card calculators come into their own. If things have gotten this bad, you're unlikely to have a good enough credit score to stand a chance of being approved for either low interest credit cards or balance transfer credit cards, so those options will probably be closed to you.

Zeroing your credit card debt

Instead, you need to come up with a plan to rid yourself of your credit card debt as quickly as possible. Calculator No. 1 can help with that, but first you need to build yourself a budget so you know the difference (your "discretionary spending") between your monthly income and your unavoidable outgoings: rent/mortgage, utilities, transportation costs, insurance, loan repayments, basic food and so on. Include minimum payments on all your credit cards among those unavoidable outgoings.

Then prepare yourself to devote a painfully high but realistic proportion of your discretionary spending to paying down your credit card debt. Fix the amount you're going to devote, and pick the credit card with the highest APR. Use calculator No. 1 to tell you how long it will take you to zero the balance on that card. Write the date down. That's your first goal.

Then do the same with the other cards, starting with the next highest APR and working your way down to to the lowest. Don't forget that you won't have to make any payments on the cards you've zeroed, so by the time you reach the last one you could be paying down significantly more than you were on the first.

Goals and (affordable) celebrations

Write down the dates on which you should clear each card so you have a series of milestones. As you pass each, pat yourself on the back; your achievement should be very satisfying. But don't be discouraged if you fail to meet some dates. Your circumstances might change, credit card interest rates could rise, or other factors may intervene. There's no point beating yourself up over such things.

When the big day comes and you're finally free of this millstone, treat yourself to a bottle of Champagne or a special meal in a fancy restaurant. By then, you should be able to afford to splash out a little and still settle the cost in full at the end of each billing cycle. And, if you keep up that self-discipline, you may never again need to use credit card calculators.

Published 09/06/11


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