Payment Holidays - Avoid Them Like The Plague

Payment Holidays - Avoid Them Like The Plague

Summary: Payment Holidays - Avoid Them Like The PlagueAfter youve been paying off your credit card for a time, you might occasionally be offered a payment holiday. Usually youll get a letter, saying that since the company knows its difficult for some families around Christmas (or whatever other excuse they think up), theyre offering you a month off from paying, as a special present or payment vacation.

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Article Body: Payment Holidays - Avoid Them Like The PlagueAfter youve been paying off your credit card for a time, you might occasionally be offered a payment holiday. Usually youll get a letter, saying that since the company knows its difficult for some families around Christmas (or whatever other excuse they think up), theyre offering you a month off from paying, as a special present or payment vacation.

Now Ask Yourself Why Would They Want To Do That?

Payment holiday offers typically have a very high acceptance rate. Most people think its great that they can take a month off from the stress of paying back debt, they tend to feel "worthy" of special treatment. What they dont usually realize is that these holidays arent really a present at all theyre a big money-maker for the credit card company. For the company, its a win-win situation: they get to make big profits just by making their poorer customers happy. .

How Can Letting Your Holiday From Paying Earn Them Money?

Well, thats where the trickiness comes in. If you read the small print, youll find that the payment holiday isnt interest free! Youre still being charged interest (even on your holiday!) and since youre not paying anything back that month, the interest will be there next month for you to pay more interest on (compound interest, you see).

That might seem a little hard to grasp, so lets look at an example. Lets say you were paying back $ of debt at .% per month (about .% per year). Your minimum payment each month is % (.% per year).

If you just pay the minimum for all months of the year, then you will pay back $., and owe $. at the end of the year. Your debt has been reduced by $., but youve lost $. in interest.

With the payment holiday, though, you pay % per month for only months (so you pay .% back on the debt over the year). Thats $., and youd owe $. at the end of the year. Overall, youve paid $. for your fabulous payment holiday from a payment of about $. In other words, your "special deal"month off cost you almost two months of payments.

If you dont understand all the math involved here, dont feel alone, its been deliberately designed by mathematicians and marketers to be as confusing as possible, to stop you working out what the really bad deal youre getting. After all, if you havent read this, would you really ever turn down a month off paying your bills? Just remember: dont fall for their special offer. The more you owe, the more that holiday will cost you. Wouldnt it be better to take your money and go on a real holiday, instead of spending it all on repaying credit card debt?

You Heard It Before - If It Sounds Too Good to Be True

In all things in life, remember that no-one gives you something for nothing least of all credit card companies. Anytime they offer you anything, its because theyre going to make a profit on it, count on it. If you cant see where their profit is coming from, be leery its most likely all a big scam thats going to cost you even more money, though you may not realize it yet.