How to Get off the  Credit Card Hamster Wheel

 

 

1️⃣  Pay a little more than the minimum.

This may seem obvious but most people don’t understand the critical difference between credit cards and other loans. 🤫The minimum payment is the credit card industry's dirty secret. It's designed to keep you in debt.

Here’s why:

With home or car loans (“term loans”) you pay more & more toward principle over time & there’s a clear schedule for paying off the loan. Credit cards work differently: They only require 1% of principal with each payment so you make *less & less* progress toward paying them off.

 

Let’s look at the numbers: A typical American with an $8k credit card balance with an APR of 22% making minimum payments will pay… brace yourself… Over $13,000 in interest over 20 years. And that assumes no new charges are added!

 

If that same customer paid just $100 extra each month toward principal they'd save… …almost $10,000 in interest and pay the debt off 15 years faster. 🤯 Why don't banks encourage this? I think you know the answer.

 

2️⃣  Get a lower APR.

Do you know your APR? Most people don’t. The APR is the yearly interest rate that you pay on your debt. 🤫

Here’s another dirty secret:

 

Millions of Americans are paying an APR of 20%, 24%², or even higher. I met one person who had a $10k balance on a Discover Card with a 33% APR! Small reductions in APR can make a BIG difference—saving you hundreds or even thousands of dollars. Let’s look at the numbers:

Millions of people faithfully pay their credit card bill every month but never get a lower rate. Why don’t banks proactively help customers who have proven their credit-worthiness get a lower rate? Again, you know the answer.

Now let’s put it all together. Let’s imagine the same person with an $8k balance (a) pays an extra 0.5% toward the principal balance each month (so 1.5% instead of 1%) and (b) finds an account with a lower APR of 16% instead of 22% The result is a WIN-WIN-WIN: