One of the most expensive things you can do in life is borrow money – especially when it comes with a high interest rate. Credit cards, payday loans, and other types of unsecured credit have a higher risk associated with them. From the lender’s perspective, there’s no collateral that they can assume ownership over if the borrower defaults. When higher risks are involved, they charge more to provide financing.
Whatever your reason for borrowing money, whether it’s a loss of income, the inability to work, unexpected expenses, or problems with overspending, getting out of debt can be both time consuming and expensive.
Even if you’re struggling to make payments today, rest assured that debt isn’t forever. You might just need some debt help advice.
How Interest Rates Work
Interest rates play an integral role in both saving money and borrowing it. When you’re an investor, the higher the rates you can earn, the faster your money will grow. As a borrower, higher rates make borrowing more expensive, and the final cost of any loan increases the longer it takes you to pay it off.
With a loan like a mortgage, your payments are usually laid out pretty clearly. You owe the lender a monthly payment that depends on your interest rate at a pace that will see you repay the full amount by the end of your term.
Credit cards are a bit more complicated because they are revolving credit. You can borrow more money each month up to your limit and make varying payments. Each month you will have to make a minimum payment, which pays down the interest (what you’re charged) first and a percentage of the principal (what you borrowed). There may also be additional charges for late payments that push up the final costs.
However, minimum payments are not the best way to repay that borrowed money. In fact, they’re designed to stretch out the amount of time you spend paying it back, maximizing charges.
It can be difficult to calculate credit card payments on your own, but there are online tools that can break it down for you. It’s worth doing, too. It will show you just how much more you have to spend than you borrowed to climb out of the red.
Get Credit Card Debt Advice
You’ve calculated the numbers and, given your budget, you can see that getting out of debt will be both expensive and time-consuming. It can take years to do it all on your own, and that’s if you’re able to make payments at all.
Fortunately, there are faster and more cost-effective ways to do it, such as a consumer proposal. Designed as an alternative to bankruptcy, it can help you escape the minimum payment trap and pay back only a portion of your debts. If your creditors accept your proposal, you make fixed monthly payments for up to five years, based on a compromise between your income, necessary expenses, and how much you owe. Not only will your debts be significantly reduced, but interest also stops growing.
It doesn’t mean you’re free and clear. A consumer proposal will affect your credit score. But if the alternative is continuing to miss payments or going years without saving anything, it might be worth considering.
Don’t get stuck in a debt trap. Discover your alternatives and find a smarter way out.