“Doc! I have to tell you about the future!” Marty McFly yells towards the end of Back to the Future. Haven't we wished at some point that there could be this kind of forewarning? Especially during those blissfully carefree summer holidays!
Whether it is the family vacation, the getaway with a love interest, or just a hike up the Himalayas, taking a vacation should put stress behind us, not ahead of us. Here's a great way to put the financial Time Machine ahead of the locomotive.
“You're Just Not Thinking Fourth Dimensionally!”
Saving up before a vacation is a great way to offset costs later. This doesn't always work because life gets in the way. If you find yourself at the other end of a vacation with a bill larger than a space-time paradox all those relaxed feelings can be washed away. It's best when looking at that dreaded bank or credit card statement to take a deep breath and remember that you don't have to pay it all at once. Almost all credit card companies accept a minimum payment. In fact, credit companies are geared for you to make the minimum payments, and often include the amount you need to pay to satisfy them (here's a calculator to give you a rough estimate if you need). Relax, things are heavy but collectors aren't going to come for you in the night.
”What's a Jigawatt?”
Interest charges are the underlying concept of any credit card, and most of the time they are fair. They are, however, also geared to make money. Your money. So when looking at that above mentioned “minimum payment” keep in mind that's the number they give you to keep you paying (the interest) without actually reducing what you owe (the principal). If the principal doesn't go down, you'll be making the same minimum payment for the rest of your life.
For example: 15% (your credit interest) of $700 (that bill at the 80's Cafe) is $105 (often your minimum payment). That means your total bill is $805. If you leave that amount it's only going to go up (never mind it going up, YOU are going to make it go down), and if you only pay the minimum, then next month is another $105 you are going to have to pay..
Let's say you can pay $400 on that $805 (the interest and principal) total. That means you've paid the interest, and taken a big chunk out of your principal, and that means your interest for next month will be $60.75, for a total of $460.75.
Now you're getting up to 88 miles per hour.
The Flux Capacitor
So you can't pay $400 from this paycheck without living on spray cheese for the next month? You don't have to be extreme, you just have to pay more than the minimum (always pay the minimum!). It will take time to pay it off and if you keep the payments consistent eventually you won't have to pay any interest. For simplicity call your bank and see if they can set up automatic payments that can be made on your payday. That way, you aren't tempted to spend your credit payment on something else. More automatic ideas can be found here.
Don't Forget About The Lone Pine Ranch...
Marty ran over a pine tree at the Twin Pines Ranch, and when he returned to his time, the mall had been renamed the Lone Pine Mall. The details in your life add up. Life gets hectic and important small things can be accidentally pushed to the side. It's very important to sit down and actually look at your finances. You want to take that credit bill down as fast as possible, right? That takes knowing where your money is going.
Consolidate the little details. This means figure out what you really have to pay each month versus what you make. Things like food, clothing (to a degree), and shelter are primary details and should be subtracted from what you make. The little details are almost everything else like that cup of coffee every day, the cost of commuting, or the novelty Grey's Sports Almanac you just had to have. Those little details add up, and that's an extra payment you could be making towards your credit card.
Could you carpool to save on gas? Do you really need Starbucks when a bottle of caffeine pills will perk you up and last longer through the month? Do you really need an $80 cable bill when Netflix is $8 a month? That difference could be an additional $72 of used pinball machine parts you can sell to the Libyans.
“If my calculations are correct, when this baby hits 88 miles per hour... ”
Another way to save yourself higher interest rates is to transfer balances. Let's say you have a credit card that only has %6 interest and a low balance and the credit card you owe the most has the %15 interest. Often you can call your credit card company and transfer the balance from one card to another. If you are unable to do this, you can also ask your bank for a line of credit that you can transfer credit card debt onto. Bank lines of credit can often be negotiated, and if you set up the automatic payments it will show consistency and look good on your credit rating.
Communication with your credit company is also very important. If you are having problems making payments, or if you get a little behind, calling and speaking to someone can result in additional charges being removed or even interest being reduced. Remember that credit card companies want you as a customer, they like your money. That means they will be willing to get some money out of you instead of none, and it can help you save your credit score.
”Where we're going we don't need roads.”
Finally, when you finish paying off those credit cards, pretend that you didn't. That means if you are used to setting aside $100 a month to pay a card, you can put that money into a savings account instead. When you take a vacation try to match what you spend against what you've saved so your card stays active but you don't end up where you were the last time.
When the next vacation rolls around you might end up ahead of the debt.
If you put your mind to it, you can accomplish anything.
Additional sources for your benefit: