I just used my credit card to book a flight to Japan. The interest rate is 10 percent. What is the quick way to pay it off in a few months? The amount of the ticket was $1,600. – April
Credit cards make it all too easy to charge first and ask questions later.
I wish there were a secret trick I could tell you that would enable you to wipe out that credit card debt in a few months. But unfortunately, there's only the old-fashioned, terribly austere, but straightforward way: If you want to pay off the $1,600 credit card debt in three months, pay $535 a month for three months; to erase the debt in four months, pay $400 a month for four months, and so on. Add a little extra at the end to cover accrued interest charges, and you're all set.
If you're like many people, however, you probably don't have an extra $400 to $500 lying around to pay your credit card bill each month. With credit cards, once a charge is made, many discover that it's actually not as easy to pay off the balance as they had thought. At that point, it's far too simple to fall into the trap of simply paying the minimum due on the credit card, or just a little more, each month.
This is the first step down the road toward credit card trouble. You're not far down that road yet, because you only recently took out that charge. The most important thing to do now is to prevent yourself from getting shackled to debt that you'll be paying off for a long, long time.
You're actually in a fairly good spot. From what it sounds like, you don't have any other credit card debt. Also, that 10 percent annual percentage rate (APR) on your credit card is certainly manageable, so interest charges won't be too punitive.
Your best bet now is to figure out how much you can possibly pay each month toward that credit card debt. That might mean forgoing other purchases for a while, until the debt is paid off. Some people even go on a “spending diet” to free up money to erase debt faster.
Use this handy credit card calculator to play with different scenarios . It will show you how long it will take you to pay off your debt with different monthly payments — and how much the interest charges will cost you. Then set a goal and stick to it. Decide on a set monthly payment. This needs to be as high as you can possibly manage, but not so high that you can't make it through every month. Then, be sure to avoid using your credit card for any other charges.
The good news is that this simple approach will do so much more than help you get your balance back to zero. You will also be picking up some great credit management skills and building an excellent credit score for yourself in the process. The biggest component of FICO scores is your payment history. By making steady, on-time payments, you're boosting your score and proving to future lenders that you'll make good on your debts.
Ultimately, that is what will give you the real financial freedom you're looking for. With a good credit score (and impeccable debt management skills), you will have easier access to the kind of loans you'll need throughout life, such as car loans with favorable interest rates, and perhaps, a mortgage for a home you can call your own.
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