Always Avoid Payment Holidays

Once you've been paying off a credit card for a while, you might be offered a 'payment holiday'. You'll get a letter, saying that since the company knows it's difficult for some families around Christmas (or whatever other excuse they think up), they're offering you a month off from paying, as a 'special present'.

Why Would They Do That?

Offers of payment holidays typically have a very high acceptance rate. People think it's great that they can take a month off from the stress of paying back debt. What they don't usually realise is that these 'holidays' aren't a present at all - they're a great money-spinner for the credit card company. For the company, it's a win-win situation: they get to make big profits just by making their poorer customers happy.

How Can Letting Me Off Paying Earn Them Money?

Well, that's where the trick comes in. If you read the small print, you'll find that the payment holiday> isn't interest free! You're still being charged interest - and since you're not paying anything back that month, the interest will be there next month for you to pay interest on (compound interest, you see).

That might feel a little hard to grasp, so here's an example. Let's say you were paying back $1000 of debt at 1.5% per month (about 19.5% per year). Your minimum payment each month is 2% (26.82% per year).

If you pay the minimum for all 12 months of the year, then you will pay back $233.51, and owe $941.62 at the end of the year. Your debt has been reduced by $58.38, and you've lost $175.13 in interest.

With the payment holiday, though, you pay 2% per month for only 11 months (so you pay 24.3% back on the debt over the year). That's $217.80, and you'd owe $960.55 at the end of the year. Overall, you've paid $37.86 for your payment holiday from a payment of about $20. In other words, your month off cost you almost two months of payments.

Don't worry if you don't understand all the maths involved here - it's been deliberately designed by mathematicians and marketers to be as confusing as possible, to stop you working out what a bad deal you're getting. After all, if you haven't read this, would you really ever turn down a month off paying your bills? Just remember: don't fall for it. The more you owe, the more that 'holiday' will cost you. Wouldn't you rather take your money and go on a real holiday, instead of spending it all on repaying credit card debt?

If It Sounds Too Good to Be True?

In all things in life, remember that no-one gives you anything for nothing - least of all credit card companies. Anytime they offer you anything, it's because they're going to make a profit on it. If you can't see where their profit is coming from, be suspicious - it's probably all a big scam that's going to cost you money, even if you don't realise it.

Ken Austin is the webmaster at Debt Consolidation Information and Credit Card Debt Relief

---

Five Credit Card Billing Problems and How to Fix Them

It goes without saying that your first and best defense... Read More

What is on Your Credit Report?

Your credit report is a very important piece of the... Read More

Borrowing on a Credit Card

One of the easiest ways to borrow money of a... Read More

Avoiding Credit Card Traps

The next time you open your credit card statement, take... Read More

Simple Identity Theft Protection

How many of you bank, shop, or transact other business... Read More

How To Read Your Credit Report

The Fair and Accurate Credit Transactions Act, signed into law... Read More

Credit Card Expenses Are Killing Your Budget!

Do you know the costs associated with your credit card?... Read More

Various Types of Credit Cards - Part 2

Several different types of credit cards offer several different options,... Read More

How a Credit Card Can Be Your Friend

We have all heard countless stories of people over their... Read More

Beat Credit Card Companies at Their Own Game!

Have you ever wondered how much money a credit card... Read More

Bad Credit? No Credit? Yeah, Its a Problem.

Many companies use the slogan "Bad Credit? No Credit? No... Read More

The Best Strategy To Erase Credit Card Debt

Credit card debt is a growing sickness in the United... Read More

A Summary of the Fair Credit Reporting Act

This summary of the Fair Credit Reporting Act will explain... Read More

Learning the Disturbing Facts about Credit Card Debt

When I received my first credit card in the mail... Read More

Rewards Cards - Are They Right For You?

Rewards cards have become the latest rage in the credit... Read More

Preventing Credit Card Mess

Credit card debts problem is extremely common today. It is... Read More

Restore Your Credit Rating And Reduce Your Debts

Your credit rating affects many areas of your life. Opening... Read More

Do You Know The Top Five Credit Card Mistakes?

When you're dealing with credit cards, you're playing with fire.... Read More

Guide to Credit Terms

Listed below is a useful guide to credit card terms.... Read More

Credit Verus Debt

Secured and unsecured debt - what's the difference?It's easy to... Read More

Beginners Guide to Credit

I remember back when I was 18 and completely oblivious... Read More

Useful Tips On Avoiding Credit and Charge Card Fraud

Credit and charge card fraud costs cardholders and issuers hundreds... Read More

Credit Score: The Brightest Feather In Your Financial Cap

Credit scores are the most important aspect that determines your... Read More

Making Sense of the Information in Your Credit Report

If you've ever applied for a credit card or loan,... Read More

Dealing With A Collection Agency

Step I - Selecting A Collection AgencySelecting a credit collection... Read More

Bad Credit Loans For Those Who Seek Alternatives for New or Old Car

You can still save money on a Bad Credit Loan... Read More

How did a Thief get my Name? Don?t be a Victim of Identity Theft

How do these people get my name? If you have... Read More

5 Surefire Ways To Eliminate Credit Card Debt

Do you have enormous credit card debt? You are certainly... Read More

Practical Suggestions for Protecting Yourself From Identity Theft

It's no surprise that thousands of Americans are victimized by... Read More

The Exact Action To Take When You Find Errors In Your Credit Report

There are times when you may be turned down for... Read More

Credit Traps Snag Consumers

Nearly 20 years ago I worked for a small consumer... Read More

I?ve Heard About FACTA; What Does It mean?

What FACTA means is that if you, as an individual,... Read More

Learn The Truth About Identity Theft

Identity theft is the fastest growing crime in America, according... Read More