Each one of us, at one time or another, has given in to temptation and bought something we knew we couldn’t really afford. And, it makes it so much easier when all you have to do is hand over your credit card.
We figure that we can take our time to pay back the debt and everything will work out in the long run. We couldn’t be more wrong, especially if we are making only the minimum monthly payment when it comes due each month.
Minimum Payments Means Paying More Over a Much Longer Period:
The hard truth is that by paying only the minimum payment, the period of debt will be stretched out for a long, long time. Of course, additional interest will be added each month which will increase the debt.
Plenty of people are in a situation of revolving debt, that is, debt that is carried over month to month. It’s what makes business so profitable for the credit providers.
Credit cards are part of life nowadays, and they can definitely make life much easier. But don’t get sucked into the trap of thinking you only have to make minimum monthly payments.
How Long Will it Take to Pay Off That Debt?
The average household has close to $16,000 in credit card debt. Minimum monthly payments on this amount would be $320, assuming payments are fixed at 2% of the debt.
But, by only paying this amount, and with an interest rate of 15% APR, it will take nearly 7 years to clear the debt, and the total amount paid back will be more than one and a half times the original amount owed!
Many people making minimum monthly payments actually see their debt increase each month. If you’re being charged fees, and if interest rates increase, the small monthly payment goes nowhere when it comes to actually reducing the principal amount of the debt.
People simply don’t realize the consequences of making minimum payments.. and a staggering 11% of cardholders are trapped in debt that never seems to decrease.
Avoid Getting Caught in the Minimum Payments Trap:
The best action you can take is to pay off your credit card bill in full each month. There may be times when you struggle to do this, because you’ve been faced with something unusual or unexpected.
Not paying off the whole amount every once in a while is fine, so long as you don’t make a habit of it. Quite simply, the longer you take to clear your debt, the more money you will pay in interest, and the more it is going to cost you for those items you charged on your card.
If you can’t pay off the balance in full every month, pay as much as you possibly can. Always make a payment that is at least two or three times the amount of the minimum that’s stipulated on your bill.
When you get a windfall such as a bonus at work, or a tax return, use it to pay off your debt rather than splashing out on something new. If you have debt on a high-interest card, look to see whether you can transfer it to a card offering 0% interest on balance transfers, and make sure you clear the debt before the zero introductory rate ends.
Above all, don’t be lured by the seemingly attractive choice of making minimum monthly payments. It’s a trap for the unwary and will cost you dearly in the long run.