3 Hidden Costs of Debt
There are the big things that people worry about spending money on: going out, entertainment, clothes, jewelry, new cars, and more. But there are 3 hidden costs of debt that really add up and can seriously set you back.
If you’re trying to get in control of your finances and find places in your budget to save money, there are places that sneakily add to your bills.
If you’re trying to get in control of your finances, the best way to start is to cut out big expenses. That will save you the most money in the quickest amount of time. But if you feel like you’re already stretched too thin and that you have nowhere else to cut back, these are for you.
3 Hidden Costs of Debt
1. Late fees
Most credit card companies charge $35 or more for a late payment. Even if your minimum payment is $5, you’ll need to pay $40 for missing your due date by one day.
What could you do with an extra $35? Fill up your car with gas, go out for dinner, buy a new purse, or pay off your debt faster?
If you’re not thinking about your bills or are prone to forgetting to pay bills from the mail, set up automatic bill paying online. This will eliminate your need to worry about late fees.
Just make sure that you’re not missing payments or are underpaying the bill. Check each month to make sure that you’re still paying more than the minimum payments to get it paid off sooner. And don’t forget to mark on your calendar when the automatic payments will be withdrawn.
And don’t forget to mark on your calendar when the automatic payments will be withdrawn. It would be awful if your automatic payment overdrew your account and you needed to pay the overdraft fee. Putting the automatic withdrawal date into your calendar will help you to make sure that you have enough money in your accounts to cover the payments.
2. Interest payments
I once had a credit card that was 16.99% interest. I figured that if I were to pay the minimum payment that it would be paid off in no time.
Wrong, wrong, so wrong. 2 years later, despite not spending a penny on the card, the balance was still virtually the same. Why? Becuase the interest payment was only $2 less than the payment toward the actual debt.
2 years later, despite not spending a penny on the card, the balance was still virtually the same. Why? Becuase the interest payment was only $2 less than the payment toward the actual debt.
I looked at my mortgage bill and if I were to only ever pay the minimum amount, I would pay as much as I paid for my house in interest over the course of the mortgage. So for my $150,000 house, I would actually send the mortgage company $300,000 over the course of the 30-year mortgage.
Interest is the silent drainer of bank accounts. Whether you’re being charged interest on a car, credit card, house, or anything else, paying more than the minimum payment can really have a huge impact on the amount that you pay over time.
Paying off debts is so important. You don’t want to be paying things off until you die, or spending more money than you need to. If you’re looking
If you’re looking to get out of debt and to save more money, you will need to spend more money today in order to save more money tomorrow. What could you do with an extra $150,000 in 30 years?
3. Skipping payments
Skipping payments might seem like it’s ok. You’ll just get around to it next month. You might not have the money right now, but it’ll be there by the time that the next bill comes in.
Now not only are you dealing with the late fees and the additional interest from the missed payment but now you have to worry about paying double what you should.
If you don’t have $100 to spare this month, will you really have $200 or more the next month?
Never skip payments. Not only will it actually cost you extra money, but it could also be detrimental to your credit score as well. I have a friend who missed her water bill for one month and her city’s policy is to send the bill to collections if the bill isn’t paid within 14 days of the due date. So now she has collections on her record on top of needing to pay for double her water bill from the past month and a late fee as well.
If you skip payments on utility bills, you could also face a shut-off notice. If you can’t pay the bill and have your utilities shut off, you’re not just on the hook for the missed bill, but also for the shockingly high fees (I’ve heard some as high as $400 from an electric company for their shut off service) from the shut-off (which I think is just abhorrent that they would charge someone who is obviously hard off for money to have their gas or electric shut off and then turned back on).
You might think that it’s ok to worry about a payment later or just ignore it, but not only does it not go away, but there are serious repercussions from missing payments or only paying the minimum.
Don’t think of it as spending extra money to get out of debt early. Think of it as helping out your future-self. Future You will be super happy to be out of debt and to avoid all of those high payments.
How did you get out of debt?