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Always Avoid Payment Holidays
Once you’ve been paying off a credit card for a while, you might be offered a ‘payment holiday’. You’ll get a letter, saying that since the company knows it’s difficult for some families around Christmas (or whatever other excuse they think up), they’re offering you a month off from paying, as a ‘special present’.
Why Would They Do That?
Offers of payment holidays typically have a very high acceptance rate. People think it’s great that they can take a month off from the stress of paying back debt. What they don’t usually realise is that these ‘holidays’ aren’t a present at all – they’re a great money-spinner for the credit card company. For the company, it’s a win-win situation: they get to make big profits just by making their poorer customers happy.
How Can Letting Me Off Paying Earn Them Money?
Well, that’s where the trick comes in. If you read the small print, you’ll find that the payment holiday isn’t interest free! You’re still being charged interest – and since you’re not paying anything back that month, the interest will be there next month for you to pay interest on (compound interest, you see).
That might feel a little hard to grasp, so here’s an example. Let’s say you were paying back $1000 of debt at 1.5% per month (about 19.5% per year). Your minimum payment each month is 2% (26.82% per year).
If you pay the minimum for all 12 months of the year, then you will pay back $233.51, and owe $941.62 at the end of the year. Your debt has been reduced by $58.38, and you’ve lost $175.13 in interest.
With the payment holiday, though, you pay 2% per month for only 11 months (so you pay 24.3% back on the debt over the year). That’s $217.80, and you’d owe $960.55 at the end of the year. Overall, you’ve paid $37.86 for your payment holiday from a payment of about $20. In other words, your month off cost you almost two months of payments.
Don’t worry if you don’t understand all the maths involved here – it’s been deliberately designed by mathematicians and marketers to be as confusing as possible, to stop you working out what a bad deal you’re getting. After all, if you haven’t read this, would you really ever turn down a month off paying your bills? Just remember: don’t fall for it. The more you owe, the more that ‘holiday’ will cost you. Wouldn’t you rather take your money and go on a real holiday, instead of spending it all on repaying credit card debt?
If It Sounds Too Good to Be True…
In all things in life, remember that no-one gives you anything for nothing – least of all credit card companies. Anytime they offer you anything, it’s because they’re going to make a profit on it. If you can’t see where their profit is coming from, be suspicious – it’s probably all a big scam that’s going to cost you money, even if you don’t realise it.
We recommend the following credit card and debt resources. They are highly reputable and will help you in choosing the best available solution for you, as well as in finding the best credit cards around.
Credit Card Resources
CreditAxis guarantees anyone a bad credit loan or credit card approval through their directory of little-known lenders. They also offer a unique credit repair kit and a do-it-yourself bankruptcy filing kit. Their information is applicable to residents of the U.S., Canada, and the UK.
LowerMyBills is a comprehensive service that helps consumers lower all their monthly bills, all in one spot. They offer a broad range of savings opportunities, with a special focus on home loans. LowerMyBills has established itself as leader in the online comparison shopping marketplace.
Debt consolidation is one of the hottest offers online today and DebtAdvocates.cc (from Intermark Media) is the first in the industry to give consumers the choice to either consolidate or eliminate their debt - based on their financial situation.
Credit Card Debt Strategies
The strategies on this site are based on various reports and the
financial experience of respected authorities.
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