Debt Relief Should Start With Credit Card Debt
When was the last time that you looked at your credit card statement in detail? If you currently have a balance outstanding, did you notice the interest rate that you are being charged on this amount? If not, we would highly recommend that before reading this article, you grab a copy of your recent statement and take a good look.
The fact of the matter is that credit card interest rates are overwhelmingly high. In some cases, credit cards can be the absolute downfall of your finances. However in other cases, credit cards can be used with great success in benefits.
How High Are Credit Card Interest Rates?
To give you an indication of just how high and debilitating credit card interest rates can be, the following list contains common credit card interest rates in different countries:
- United States - 18.0% to 28.0% per annum.
- UK - 15.0% to 24.5% per annum.
- Australia - 14.95% to 22.75% per annum.
The above rates are the regulatory guidelines on how interest should be charged to a credit card. As you can see, they are far higher than any other type of loan that you could choose to access, including personal loans, and even hire purchase loans.
Why Credit Card Debt Should Be Tackled First
The above rates clearly show how high the interest rates on credit cards really are, but they fail to show what this might result in if you have an outstanding balance on a credit card. Following is a simple calculation, based on a consumer with $5,000 on their credit card bearing interest:
- Outstanding amount: $5,000.00
- Interest in 30 days (charged at 20% p.a.): $83.33
- Interest per year (assuming interest only is paid off each month): $1,000.00
As you can see, if the interest rate on your credit card is 20.0% per annum and you have a balance of $5,000 - you will be forking out over $80 per month in interest alone.
This is a huge amount in interest, and the reality is that there are a lot of people out there with outstanding balances well above $5,000.00. Hence, if at all possible, any extra proceeds you receive, or any savings you currently have should be used for targeted debt relief, starting with the credit card!