The article "Avoid Payment Holidays When Offered" talks about credit, it has been released by Jay Jackson.
Once you've been paying off a cerdit card for a while you might be offered a 'payment holiday.' You'll get a letter stating that for the company knows it's difficult for some families around Christmas 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 really 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 realize is that thsee 'holidays' aren't a present at all. They're a great money-spinner for the creidt 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?
That's the trick. If you read the small print you'll find that the payment holiday isn't interest free!
You're still being charged interest. And, for you're not paying anything back that mnoth the interest will be there next month for you to pay interest on - called compound interest.
This is interest paid on interest.
That might feel a little hard to grasp, so here's an examlpe.
Let's say you were paiyng back $1000 of debt at 1.5% per month, about 19.5% per year. Your minimum paymnet each month is 2% or 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 aobut $20.
In other words, your month off cost you almsot two months of payments!
Don't worry if you don't understand all the math.
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. Just remember, don't fall for it.
The more you owe the more that 'holiday' will cost you.
If It Sounds Too Good to Be True
Anytime they offer you anything, it's cause they're going to make a profit on it. If you can't see where their profit is coming from, be suspicious.
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