How to Beat Credit Card Companies at Their Own Game: The Bi-weekly Loan Payment Strategy How Basic Math Can Set You Free from Debt
America’s Credit Card Problem Nothing will hold your life back like credit card debt. It’s sneaky, pernicious, and unforgiving. The bills keep coming whether you have the money for them or not, and interest never stops accruing until your balance hits zero. It doesn’t take long until you owe more than you ever intended to purchase, and many people find themselves struggling to meet a minimum payment from one month to the next. Did you know that the average US household’s credit card debt stands at $15,185? That’s an especially disturbing number when you consider that the median annual income for Americans is only $50,000, meaning that many single-income American households could owe nearly a third of their income (or more) to credit card companies. In fact, credit cards are the third largest source of debt for consumers, just behind student and home loans. In total, American consumers currently owe $849.8 billion on their credit cards alone! Nevertheless, people continue to open new credit card accounts. For most, it begins innocently enough. Everyone hits hard times when money gets tight, and in those moments, the chance to charge a purchase or payment can seem too tempting to pass up. “I’ll have more money again in a few months,” we tell ourselves, so the decision to use a card in the short-term seems justified. But as the old saying goes, time and money are the same thing. What seems like an easy payoff now won’t feel nearly as simple or fun down the road. Unexpected expenses or pay cuts can arise, and even if your income does see a boost, you’ll be less inclined to allocate extra funds to paying off old debt in full. In the meantime, your once-low interest rate sees a sudden hike or your maximum credit cap gets lifted, enticing you to make even more charges. Before long — and it happens fast enough to catch Percentage of US millions of people off guard — you’re households with an drowning in debt.
existing credit card balance
This is how credit card companies make money. It happens to responsible, rational, and intelligent people just like you every day. There’s no shame in finding yourself in debt, but it’s the action you take now in response that counts. Credit cards have their place in our world. Handled delicately, they can help out in true emergencies and even boost your credit score. But debt doesn’t have a place in anyone’s life. Ralph Waldo Emerson once wrote that “a man in debt is so far a slave.” In this paper, we’ll help you understand the specific complications of credit card debt and show you how you can set yourself free with a proactive plan designed to pay down principal while also eliminating interest charges at a much faster rate.
Page 1 | US Equity Advantage | Feb. 2014 | How to Beat Credit Card Companies at Their Own Game
Total National Credit Card Debt (Year by Year) According to the US Federal Reserve, the total credit card debt in 1967 was $1.4 billion. That number had jumped to $39 billion by 1977, and then again to $169 billion by 1987. Since the late ‘80s, our national credit card debt has quintupled. Here’s a look at the exponential trend in credit card debt over just the past few years. Note that there was a small decline following the economic downturn in 2008/2009, but the numbers are climbing yet again (with even greater growth expected for year-end 2013 and 2014). It’s astonishing to think that Americans created a nearly $1 trillion quagmire of crippling debt for themselves in just about 45 years, but perhaps it’s not such a surprise. Unlike some other types of loans, credit cards are structured with certain key characteristics that make them especially perilous for consumers. In the pages ahead, we’ll look at some of those particular issues and how you can outsmart them with a simple strategy.
Total Credit Card Debt 2002 - $769 billion 2003 - $791 billion 2004 - $823 billion 2005 - $849 billion 2006 - $902 billion 2007 - $972 billion 2008 - $1.005 trillion 2009 - $917 billion 2010: - $840 billion 2011: - $842.5 billion 2012: - $845.8 billion
$10,000+ The current credit card balance for more than 15% of Americans
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The Tricky Thing About Credit Cards Credit cards are like quicksand. The deeper you get in, the harder it is to get out. But you probably already know that from personal experience. Most people have brushed up against nasty credit card accrual at one point or another, and it can strike as fast as lightning. How does that happen? One word: interest.
Another Day, Another Charge Why Annual Percentage Rates (APRs) are Misleading Too many people borrow money on a credit card without really understanding how interest works... and the credit card companies count on that. To break it down for you, let’s start with two basic terms: “principal” and “compound interest.” Principal refers to the actual dollar amount you charge on your credit card. Compound interest is the amount the lender charges you for the use of their credit line. The interest is assessed as a percentage of your balance and then added to the total. The next interest charge is then assessed against this new, higher balance... and that’s where credit cards get tricky. To illustrate the basic concept, we’ll use easy, even numbers. Let’s say you borrow $1,000 in principal with an interest rate of 10% every month. After the first month, you’ll be charged $100 in interest, so your new balance is $1,100. After the second month, you’ll be charged $110 in interest, and now you owe a total of $1,210. It’s easy to see how quickly debt can get out of control.
$3,200 $2,560 $1,920 $1,280 $640 $0 1
Credit card companies have to Interest Total Owed tell you the approximate interest they’re going to charge against your principal, and they usually express that as an Annual Percentage Rate (APR). That’s somewhat misleading, though, because most lenders actually calculate interest daily. Let’s look at how that works: Suppose you get a new credit card and charge $10,000 on it with 13% APR (which works out to a daily compounded interest rate of roughly 0.036%). That means you’d be charged $3.60 in interest on the first day, for a new balance of $10,003.60 by Day 2. This continues each and every day. In just five days’ time, you’ve already added around $15 in interest to your balance, and that number will grow exponentially every day to come. You can imagine the effect that has over the course of weeks, months, and even years. As you’ll see in the latter part of this paper, the most effective strategy for eliminating debt is one that beats the credit card companies at their own game. By acting sooner than later and avoiding the trap of monthly payments, you can steadily chip away at the lender’s ability to compound your interest. But daily compounding isn’t the only problem with credit cards.
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Low Interest Rates Don’t Always Stay Locked Credit companies are masterful marketers. They have a lot of bait in their box for reeling in new customers. One of their most common tools is a low introductory interest rate (emphasis on introductory). At some point, you’ve probably gotten a letter in the mail informing you that you’ve been pre-approved for a new credit card with an incredibly low interest rate, sometimes as little as 0% APR. But interest rates don’t stay low forever. As we’ve seen, credit cards are designed to substantially increase your balance over a short period of time. When that inevitably happens, your lender is apt to hike your interest rate, leading to even greater balances in an even shorter timeframe. Some cards have set expiration dates on their introductory APRs, and if you miss a payment or max out your card, you can expect your rate to jump even higher.
13.9% Percentage of Americans’ disposable income spent on credit card payments
Your Credit Score Stays With You Lenders report negative activity on your account to the major credit rating bureaus. So when you miss a payment or exceed your credit limit, it’s not just your interest rate that gets affected — your credit score can quickly plummet, too. Negative activity generally stays on your credit report for seven years, meaning that your ability to get a house or car will be severely limited for a long time to come. You may even find yourself turned down for leases and other rental applications, or otherwise paying higher rental and interest rates because of your diminished credit score. But even if you make every payment on time, simply carrying a large balance on your card will adversely impact your credit report. Constantly making only The amount of household income the minimum payment every month that families actually spend to pay can take a toll too. (Besides, minimum down their debts payments go almost entirely to interest alone, so it can take decades to pay off a card that way.) Some financial experts recommend never exceeding more than 20% of your credit limit for that reason.
Few things can wreak havoc on your financial life like a poor credit score. That’s why it’s so important to stand strong against the threat of credit card debt, and to take action against your mounting obligations before it’s too late.
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Why Focus on Credit Cards? 5 Great Reasons to Start with Credit Cards First If you’re like most people, credit cards aren’t the only debts you still owe. Houses, cars, and college degrees are all commonly obtained on credit, and those often cost more than whatever your Visa balance is. So when you have a long list of loans you could be making payments on, why should you focus on paying off credit cards? We’ll give you five good reasons.
You Have to Start Somewhere First of all, you need to pay off something. The least effective strategy you could adopt is to just keep making small monthly payments on all of your loans. That’s a sure way to live the rest of your life in debt. True freedom means eventually ridding yourself of all the financial obligations that are holding you down, but it takes time. Remember, debt-free living is a marathon — not a sprint.
Financial Surprises are the Worst Surprises Unlike other loans, you probably never planned to have credit card debt. People usually take out car loans or mortgages as part of a long-term financial plan, or at the very least go into them with the expectation that the loan will be with them for a while. But credit card debt tends to sneak up by surprise. That’s a great reason to get rid of it first. Zap your credit card bills and get your finances back on track.
They Can’t Compound Interest on Debt You Don’t Owe Remember that APRs can vary wildly over time. Compared to other types of loans, credit cards are more likely to see a sudden spike in your interest rate. Sometimes those hikes go unnoticed by the consumer simply because they’re too busy to carefully read every notice they get in the mail. The faster you get rid of credit card debt, the faster you shut down those out-of-control, dailycompounded interest rates.
Low Credit Card Balance = High Credit Report Score Relief from credit card debt also has the advantage of immediate impact. Remember that your balance-to-credit-limit ratio has a direct and profound impact on your credit score. Every time you bring down your credit card balance, you’re helping to improve your credit report. And when there are no more MasterCard bills in the mailbox, you’ll never have to worry about accidentally missing a due date. Paying off your card is probably the best step you can take to protect your credit score.
Because You Can Finally, it makes sense to focus first on paying off your credit cards simply because you can pay them off. In most cases, it’s a much more attainable goal than, say, paying off your house. Focus on eliminating 100% of your credit card debt, get it out of your life, and then you’ll have more freedom to start paying down your other debt.
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The Bi-weekly / Early Loan Payoff Strategy A Commonsense, Simple-Math Solution for Faster Debt Elimination Bi-weekly / Early Loan Payoff is a novel approach to debt elimination that simply involves dividing a monthly payment in half and paying it every two weeks instead. It’s an idea so simple and mathematically sensible that it’s almost surprising that it hasn’t always worked that way. But, unfortunately for the credit card companies, people are starting to catch on. Here’s how it works. Suppose your monthly Visa payment is $100. Instead of paying $100 at the end of every month, you pay $50 once every two weeks instead. How can that make a difference? Actually, it’s just good clean math: •
Every time you make a payment, there’s less principal for your lender to charge interest against. When you make a payment every two weeks, your principal grows incrementally smaller twice a month instead of just once. Now, instead of your credit card exponentially increasing your balance, you’re exponentially reducing your debt. It’s an incredibly sensible way to beat the credit card companies at their own game.
Here’s another dirty little secret: Because there are 52 weeks in a year but only 12 months, paying bi-weekly will result in 26 payments (52 ÷ 2) instead of 24 (12 x 2). So you’re technically making an extra month’s worth of payments, but because it’s spread out bi-weekly over the course of the year, you’ll never feel the sting... but your credit card company will.
But here’s the only catch: you have to be extremely disciplined about making your payments bi-weekly every single time, without fail. You also have to call your lender after each bi-weekly payment and make sure that they’re applying it to your principal and not to future payments (they’ll often do the latter by default, which is considerably less helpful to your plight). Unfortunately, most people don’t have the time or dedication to see the strategy through on their own. If everyone were that diligent when it comes to credit card payments, America probably wouldn’t have $849.8 billion dollars in credit card debt. The reality is that most people will cave into the temptation to stretch two weeks into three or otherwise slip up and forget altogether. True freedom from debt requires a bold decision to do what it takes to get rid of the debt once and for all. Fortunately, bi-weekly / early loan payoff providers like US Equity Advantage have simple plans that get people on the fast track and keep them there until their debt hits zero.
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US Equity Advantage’s AutoPayPlus™ is one such program. It makes people’s bi-weekly, weekly, bi-monthly or monthly payments for them on a regular schedule and then follows up with the credit card company after each payment to ensure that the funds are applied toward principal rather than future payments. Once a consumer signs up with AutoPayPlus, they can take their mind off their debt, knowing that it’s steadily being paid off with an ever-shrinking interest and balance. And the program’s PaymentPlus™ Guarantee makes sure that the consumer never faces a penalty for missed or late payments.
"When you pay a half a payment every two weeks, keep in mind that there are 26 two-week periods in a year. You're paying 26 half payments. Twenty-six halves equal 13 wholes. You're paying an extra payment each year. That's why your [loan] pays off eight years early." – Dave Ramsey, “The Dave Ramsey Show”
A one-time fee of $399 gives consumers lifetime membership in the AutoPayPlus program for use with an unlimited number of loans, whether it’s a credit card, student loan, mortgage, etc. It’s even available for making utility payments and other non-interestaccruing obligations. And because US Equity Advantage doesn’t require an upfront payment, the $399 can be deducted over time from the initial payments made toward credit card principal. It’s an affordable and effective way to ensure 100% elimination of credit card debt.
Unlike some other do-it-yourself methods, AutoPayPlus offers: •
Guidance for a surefire, comprehensive payment plan
Faster payoff for your entire loan
Smaller interest charges (many people literally save thousands of dollars in total interest accrued)
Every payment submitted on time, guaranteed
Consistent follow-through with the lender to make sure they’re putting your payments where they count
Multilingual customer service
Cancellation at any time with no cancellation fee
Customizable payment plans to match your particular ability and needs
It’s an easy way to put the Bi-weekly Early Loan Payoff Strategy to work for you. Bi-weekly debt elimination is a proven approach that has been embraced by everyone from Dave Ramsey and Clark Howard to David Bach and Suze Orman. Stop paying untold thousands in interest charges. Make the decision to get rid of all your credit card debt once and for all. Enroll in AutoPayPlus and start changing your life for the better... today.
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Debt’s Death Begins With You Credit cards haven’t been with us long, but in the half-century or so since their inception, they’ve managed to drag millions of Americans into the deep trenches of suffocating debt.
If you’ve suddenly found yourself with an unexpected and seemingly insurmountable credit card balance on your shoulders, you aren’t alone. It happens to people all around the world every day.
The amount of household income that families actually spend to pay down their debts
But credit cards don’t have to control your life. Get out from under that boulder and start chipping away. With a smart strategy in mind and a little support to help you stick to it, you can leave all your debt behind. All it takes is a decision to act now. Bi-weekly Loan Payments is a straightforward concept, but its simplicity is what makes it work so well. With just a little bit of clever calendarsetting, this effective strategy puts the rules of basic math to work in your favor. Beat the credit card companies at their own game and change your life without changing your lifestyle. When you sign up for AutoPayPlus from US Equity Advantage, you take the critical first step toward freedom. AutoPayPlus does all the rest, managing your early loan payoff so that you never miss a payment and never get off track. It virtually guarantees that your debt will disappear in just a matter of time, and all you have to do is split the payment you’re already making in half.
Who knew that simple math could set you free?
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® About US Equity Advantage Founded in Orlando, Fla. in 2003, US Equity Advantage (USEA) is the industry leader in biweekly and early loan payoff services, from home mortgage and student loans to credit cards, automobiles, and more. USEA’s customers enroll as lifelong members in order to strategically eliminate an unlimited number of loans or other debts. Members receive superior service with a flexible debt payment plan that can dramatically reduce interest charges and rapidly pay down principal for faster debt elimination. US Equity Advantage is the exclusive provider of the life-changing AutoPayPlus™ service, which administers members’ payments for them, guaranteeing that they never miss a payment or get off track. To date, USEA has safely and securely transmitted more than $700 million on its members’ behalves. The company is committed to helping consumers reduce their debt, save for the future, and reach their financial objectives. To date, USEA has worked with hundreds of thousands of members to do just that. To try US Equity’s commonsense, simple-math approach, sample the USEA Biweekly Loan Calculator for free online. For additional information, visit www.usequityadvantage.com, call 800.894.5000, or find USEA on Facebook or Twitter (@AccelerateLoans).
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Page 9 | US Equity Advantage | Feb. 2014 | How to Beat Credit Card Companies at Their Own Game