Credit Card Installment Payments
Most of us have several credit cards, a main credit card and another one that we use as a backup in case we max out or the credit card is stolen etc. In addition many consumers also have store credit cards that offer 10% off the purchase price when we use them. These are great deals, since many of us will purchase an item on sale and then get another 10% of the sale price. A good deal right! Not necessarily. Once you begin making installment payments on these credit cards, you may be surprised at the amount of interest you are paying vs. the amount of principle that you are actually paying off each month.
Store credit cards typically charge interest on the balance on the credit card somewhere in the range of 18% to 28% depending on the store. When you compare to 5 year term loans or mortgage interest rates, these store credit card rates are extremely high. The installment payments are also very high and most consumers will find it difficult to make their monthly installment payments with these high rates.
Solutions to High Credit Card Installment Payments
There are solutions to this problem, however it depends on your financial situation as well as whether you have the discipline to manage your credit cards once you have paid them down. Many people, once their credit card balances are transferred to a loan or mortgage with a lower interest rate and a much lower installment payment, just load up on the credit card all over again. They end up with a problem that is now much worse. They have installment payments again on the credit card and a large installment payment on their loan or mortgage. My suggestion: Cut up the store credit card if you are worried that you will not have the discipline to manage your credit card balances.
Arrange a Personal Loan at your Local Bank
Many people are finding it difficult to borrow money right now in 2010 due to the recent financial crisis, however for those of you that have the income and the credit rating, this may be an option. Paying an installment payment on a loan based on an interest rate in the range of 5% to 8% is so much better than making installment payments when the interest rate is 28%.
Increase your Mortgage Principle
Again, this option may not be available to everyone due to the recent financial crisis during 2009. Many homeowners found that the value of their homes actually declined, in some cases to less than the value of the existing mortgage. However if you have a small mortgage relative to the value of your home, you may be able to persuade the bank to increase the amount of your mortgage so that you can pay down your credit cards and eliminate the corresponding installment payment. Not only will the interest rate be a lot lower, the term of the mortgage is longer than 5 years ( in some cases it can be 25 or 35 years) which has the effect of making the installment payment increment quite low. This option will give you the lowest installment payments overall, however we emphasize that cutting up your credit cards should be given serious consideration.
Transfer Credit Card Balance to a Competitive Credit Card
We have all received these offers in the mail. Apply for a new credit card, transfer your existing credit card balances to the new credit card and they will guarantee you a low introductory rate for some period of time. On the surface these credit card offers sound pretty good, however there are a few pitfalls to them which we would like to point out, which can effect your monthly installment payment significantly.
Often the introductory is quite attractive and will significantly decrease your installment payments. There are three issues that consumers need to be aware of. First the introductory rate only lasts for a defined amount of time. Once that time limit is up, the interest rate returns to the usual high credit card rate with the corresponding impact on your monthly installment payment. If you can, pay off the principle before you reach the end of this time limit.
Secondly, the next catch is that if you miss a payment, even by one day, the credit card company has the right to increase the interest rate to the normal rate that they charge. How many times have we scheduled an electronic payment, only to have keyed in the wrong date, or the wrong amount. That is all it takes so make sure this amount is correct.
Third, if you should exceed the credit limit they have offered to you, which includes the transferred balance as well as any new charges, they have the right to increase the interest rate. Easy to do and with significant consequences.
The writer recently received an offer just like this one. If you missed a payment or exceeded the credit limit, the interest rate went from 1.99% for the first 10 billing cycles to 19.99%! A significant increase to your monthly installment payments!
Installment Payments
Installment payments are based on the term which is usually 5 years for credit cards, the interest rate and the balance. As we indicated earlier the interest rate can vary from 18% to 28% depending on the card and the institution you are dealing with. Your balance is a bit trickier.
If you pay the balance on your credit card each month prior to the due date, then no interest is calculated and you do not have installment payments. If you not pay the balance off or just pay a portion of the balance prior to the due date, then interest will be charged on the remaining balance from the end of the grace period to the billing date. If you take cash advances on your credit card, interest is charge immediately and is calculated as part of your installment payment. Consumers can easily find a large interest charge on their invoices due to cash advances and unpaid balances!
