Ashley Effinger Hey credit card holders! Have you ever gotten an offer for a “payment holiday“?
You know, those letters that seem like a special gift to give you a break from making your monthly payment?
Well, let’s take a closer look at why credit card companies are offering these so-called holidays.
At first glance, it seems like a dream come true to have a month off from making payments.
But here’s the catch: it’s not actually a gift. It’s just a sneaky way for credit card companies to make more money off of you.
So what exactly is a credit card payment holiday?
It’s when your credit card provider allows you to temporarily freeze payments, either in full or partially, giving you some room to breathe.
How do credit card companies benefit from payment holidays?
Now, you might be wondering how skipping a payment could benefit the credit card companies.
Here’s the trick:
If you read the fine print, you’ll see that the payment holiday isn’t interest-free. That’s right, you’re still getting charged interest. And because you’re not paying anything back for a month, that interest will be waiting for you next month, accumulating even more interest.
So, while it may seem like a win-win situation, it’s really just a clever way for credit card companies to make more profit off of you. Don’t be fooled by the holiday disguise – it’s not as great as it seems!
Let me break it down for you with a little illustration
Imagine you have a debt of $1000 that’s growing at a rate of 1.5% per month (a whopping 19.5% per year). And you’re making minimum monthly payments of 2% (or roughly 26.82% per year).
If you stick to those minimum payments for a whole year, you’ll end up paying back $233.51.
Not bad, right?
But here’s the kicker: you’ll still owe a hefty $941.62 at the end of it all. So, you’ve only cut down your debt by $58.38, while getting robbed of $175.13 in interest. Ouch!
This example also highlights why you should avoid paying the bare minimum monthly payments!
Now, let’s do the math for payment holidays
If you decide to treat yourself to one, you’ll be paying 2% per month for just 11 months (or 24.3% on your debt). That adds up to $217.80, and you’ll still be left with a remaining balance of $960.55 after a year.
So, what was the cost of that month off?
Around $38!
All for avoiding a measly $20 payment (which is just 2% of $1000). In simpler terms, taking that break will cost you nearly two months’ worth of payments.
I get it, the numbers can be mind-boggling.
And guess what?
They were designed that way, cooked up by sneaky mathematicians and marketers who want to keep you in the dark about what a bad deal you’re getting.
Payment holidays sound good but are they?
First things first, if something sounds too good to be true, it probably is.
Credit card companies are no exception. They’re not known for giving away valuable stuff with no strings attached. So, whenever they offer you something, you better believe they’re making a profit off of it.
Don’t be fooled by their tricks, because that next slight of hand could be quietly milking you for more interest.
Sneaky, right?
Should you consider a payment holiday if you are experiencing financial hardship?
Now, if you’re struggling to make your credit card payments, don’t worry!
You’ve got options, my friend. Here are a couple of alternatives to freezing your credit card payments:
Option one: Find a credit card with a sweeter deal
Depending on your credit rating, you might be able to snag a card that offers a lower interest rate than your current one. It’s like finding that perfect pair of shoes on sale – a total win!
Option two: Consider a debt consolidation loan
This could be a cheaper alternative to relying on your credit card. It’s like bringing all your debts together into one happy family. Plus, it might make managing your finances a bit easier.
Credit card payment holidays might not be all rainbows and sunshine, but with these other options in your back pocket, you’ll be one step closer to financial freedom.
Stick to the game plan
Now that you’ve read this article, you won’t be fooled by the allure of the next “payment holiday” offer. Remember, the more you owe, the more that holiday will dig into your pockets. So, instead of falling for their tricks, let’s focus on paying off your credit card debt in record time.
Sound like a plan?“
Stay informed and keep those credit cards in check, folks. Don’t let the holiday spirit cloud your judgment!
