wealtharticles-why_must_you_eliminate_credit_card

Why must you eliminate credit card debt?

Using plastic money instead of real money is a trend that has caught on like a house on fire. Plastic card is easy to carry, offers you ample credit and you just need to swipe it to buy any number of things. It's as seductive as owning a bottomless pit of liquid gold. Only, after a while, it does bottom out and leave you with debts that suck your finances dry.

Let us look at an example. Suppose there is an outstanding payment of $5,000 on your credit card. Your monthly rate of interest is 18%. On the face of it, things look pretty comfortable because the credit card company asks you to make a minimum monthly payment of $150 only. But, what really happens is that even at that rate, you need approximately four years to settle your debt (provided you are not charging that card anymore). Worse, ultimately, you end up paying $2,000 as interest alone. That is too huge a price to pay for credit.

As you can see, you throw away thousands of dollars when you rely on credit for your purchases. According to CardTrak, the average American household accrued a credit card debt of $6,600 in 2007. The figures have gone up steadily since then. On an average, every American family is shelling out more than $1,500 a year on credit card debts alone. This is a huge cut from your monthly income.

A number of credit cards are high interest credit cards. These offer you more limit but they charge a high rate of interest too. Make it a policy to stop using high interest rate credit cards because the credit you avail is ultimately breaking your bank account.

Another reason why you must eliminate credit card debt is the tax perspective. Unlike other kinds of debt, credit card debts are not tax deductible. For example, suppose you borrow money to purchase a home. The home can be used as an asset that attracts tax deduction. But the same is not applicable to interest accrued on credit card debts as these are not tax deductible. So, not only are you paying interest on your borrowing, you are also paying tax on it. A double whammy that's sure to break your financial backbone.

Did you know that credit cards generally charge about two times the nominal rate of interest as other debts like a home equity loan or a mortgage? So, the interest you pay on your credit card is really very high. That is one more reason to eliminate credit card debt now!

You may not know it now but eliminating credit card debt can actually free up a lot of money. Financial advisors always ask their clients to eliminate credit card debt so they can open up other avenues of guaranteed investment opportunities.

If you want to put your finances in order, the first thing to do is eliminate all kinds of credit card debts. Make the biggest payments possible on these debts at your earliest. Avoid new credit card debts. Budget well, so you can decide how much you can afford to pay towards your debts. Once your credit card debts start shrinking, you will feel enthusiastic about paying back more and more as quickly as possible. This is the surest way to enjoy a debt free life.

My name's Erin Kutnick, founder of First Rate Debt Solutions. If you're looking for more detailed information on how to eliminate credit card debt, please visit http://www.firstratedebtsolutions.com