If you find yourself in a situation when monthly credit card payments started ‘choking’ you, it is time to find a way to get 0% financing.
But before I give you a ‘healing’ prescription, let’s look at why you found yourself in such financial situation. The key reason for this is lack of knowledge of the credit card financing rules used by the banks.
Rule #1: Do not exceed 25% of your credit limit use. If you do, it negatively impacts your credit score and deprives you of the possibility to open new credit cards in order to pay off the existing debts.
Rule #2: Each credit card balance should be paid off no later than 10 months after the credit was given.
Rule #3: Bank makes a contract with you for the term of 12 months. It is only for this period of time that bank gives you 0% interest and allows minimal payments. These benefits are offered by the bank on the condition that you pay off the credit no later than in 12 months.
In case you fail to fulfill this obligation, the following happens:
- Bank tries to get rid of you by lowering your credit score;
- In the second year, your interest rate goes from 0% to 14-16%;
- As a result, your monthly payment increases 3-4 times.
To be precise, within the first 12 months you pay approximately 30% of the regular payment, while in the next 12 months, you will be paying 120%. Each consecutive year your interest will be 6-8% higher, and your payment will increase 25-50% compared to the previous year. It is no surprise that in 3-4 years your payments will sky rocket pushing you to bankruptcy. That’s why most people associate credit cards with huge monthly payments and have negative attitude to this powerful financial tool.
Let’s look at the situation where credit cards rescue themselves allowing you to avoid bankruptcy. Suppose your credit card balance is $20K (with the full limit of $25K). Your credit score has dropped to 640 while your monthly payment has reached $450.00. The only way to lower the payment is to pay off your debt by opening new credit cards. If you manage to do this, you will kill two birds with one stone: considerably lower your monthly payment (from $450.00 to $90.00) and start the pay off with 0% interest.
For this to happen, you have to dramatically raise your credit score to 720-740 in the shortest possible time. To make this possible, you have to lower your present percentage of credit limit use from 85% to 25- 30%. Fortunately, there is a way to do this through the Authorized User option which allows you to add new cards to the list of the existing ones without credit score check. You need to become an authorized user of 5-6 credit cards with the total credit limit of $60-70K. In this case, percentage of credit limit use will drop from 85% to 17% and credit bureaus will start re-calculating your score. This is not going to happen overnight, but within 4-5 months your credit score will go up to 700-740. This will enable you to open your own credit cards and gradually transfer high interest balances to 0% interest ones. At the same time, the first year benefits (see above) will allow you to lower your monthly payments to 30% level.
As you can see, the market has offered you yet another rescue plan. It’s all up to you. Analyze your credit card debts and plan the term and possibility of their pay off. Even if you do not expect to have any problems with re-payment of your debt within 1-2 years, do not ignore the possibility to create an additional fund that will always allow you to pay off your debts with low interest rate. Do you remember the name of this fund? You are right – it’s called Emergency Fund. It is smar t to have it.
You can always count on my assistance.
Please call me for more information: 847-520-7030.