Credit Cards: Debt Pay Offs

It is a misconception among credit card holders that when you are paying off your credit cards the oldest debts are paid off first, or it may be that you have never even thought about the way in which the debt is paid off. In truth, your cheapest debts are paid off first regardless of when you used your credit card. Different interest rates are applied for different products on your credit card such as purchases, cash advances, balance transfers and credit card cheque.

Higher interest rates are normally applied for products such as cash advances and credit card cheque. It's not all bad news as a handful of credit cards providers actually pay off your more expensive debts first. You're probably wondering what this has got to do with you and if it applies to you, well; by paying off your cheapest debts first the credit card provider will be making more profit and gaining more interest on the more expensive debts than from the lower interest debts.

It is estimated that over 6 billion pounds of your money is being unnecessarily wasted in this way. There are only four UK credit card providers that operate their payment clearances in a way that pays off your most expensive debt first. The four credit card providers are HSBC, First Direct, Nationwide Building Society and Liverpool Victoria. If you are looking to pay off your credit card balance in full every month then the way in which the repayments are structured will not affect you but it is worth bearing in mind just incase one month you can't make the payment in full that you have a low interest credit card or a credit card that pays off the more expensive debt first.

There is a lot to consider when you are looking to purchase a credit card; it may be that looking for the lowest APR on your credit card may not be as good value as you first thought. Always read the small print on the application, as this will tell you the structure of repayments. The way in which your credit is paid off is another view to which you should take into consideration when you are purchasing a new credit card. Remember, all credit card providers are competing for your business so they will make their offers sound as attractive as they can, see beyond this and choose the best credit card to suit your needs and your wallet. Many of us find ourselves in some debt.

Very few of us own everything free and clear. We may have a car loan, a mortgage on our house and a couple credit card bills. But for some of us, debt gets out of hand. In fact, it is often not that hard to let our debt get out of hand. One of the biggest culprits that can catapult us into serious debt is a credit card. At least when we are paying on a mortgage; we usually have a clear understanding of the terms and the consequences if we do not pay our payments on times but with credit cards we do not often think through the consequences of our spending actions.

Credit cards make it easy to swipe first and think later, often much later. For a while it is easy to charge purchases and get by only making the minimum payments. In the beginning when we are only making our first few, smaller charges, the minimum payments, can be small: 20, 40, and 50 a month. Then they can begin to grow to 75, 100, 150 and then into the 100's. Many people no longer save and save until they finally have saved enough money to buy what they want. People work long hard, hours and so they believe they are entitled to anything they want. If they want a Mercedes or a BMW, they lease the car or take out a loan to buy one.

When someone sees an expensive leather coat, they put it on their store charge card. No, they do not really need a 6 bedroom house with four bathrooms, but it's such a great looking house, that they take out a ridiculous mortgage on it anyway. The fact is, in today's society many people live well beyond their means. They often do not carefully plan and do not think things through. If they are approved for financing for a car and qualify for a mortgage on their home, if they apply for and receive new credit cards they accept. People assume, that when they are approved for loans and have credit extended to them, that they must be able to afford the payments.

Often times, people do not sit down and carefully plan their budget. Just because you are approved for a loan or you have a credit card with a 50,000 credit card limit does not mean you can really afford to take advantage of all that credit. If you are not careful, you can quickly find yourself over your head in debt. As we mentioned earlier one of the major culprits of causing people much debt is a credit card. People begin to spend well beyond their means. They may have a credit card with a limit of 25,000 for example.

For some reason they never sit down to think, that if they use that full credit limit, they will need to pay that back, plus interest. And depending on their credit card, the interest rate could be quite high. In some cases it could be 20% or even higher! Unfortunately, sometimes people do not stop to consider this. They just start spending money without thinking. They start charging fancy clothes that they do not need, home theatre systems, big screen televisions, top of the line home appliances. People have all this credit in the palm of their hands and they forget to consider that they will need to pay this money back plus interest. Very quickly they find themselves in debt.

Sometimes using credit cards becomes a matter of convenience. It's quick and easy to pay with a credit card. You can pay with your card at the gas pump and never go into the gas station. At the restaurant you can have the waiter quickly swipe your card. Online and over the phone you can use your credit card. You may just use your credit card for convenience with every intention of paying the balance off each month. Then you may say, "oh I'll pay it next month" or just this once I'll only pay the minimum balance. Before you know it the balance is adding up and so are the interest charges. It's very easy for debt to add up. It can happen quickly and before we even realize what is happening. We get in a habit of wanting to reward ourselves for our hard work. So we charge or take our loans for things that we cannot afford to pay cash for so we can have these things right now. We also charge new items on our credit cards and before long we are swamped in debt and wondering how we got here and more importantly how we can get out.