Millions of Americans pay their credit card payments every month, but only the minimum amount. While that may keep their credit score in check, it’s doing heavy damage on their personal finances. Here is the impact of only paying your minimum card payment – and how to snap out if it.
Going in, it’s understandable when times are tough that you may only be able to meet the minimum payment tab on your monthly credit card deal. And, at least you’re keeping your credit rating in good order by abiding by the bare-bones payment terms of your card contract.
But also know that, by paying the minimally-required amount, you’re piling up the debt load on your credit card bill. To get a clearer picture, look at credit card debt as a percentage game. The higher percentage of debt you pay, the lower your card balance, and the better off you are financially.
Let’s look at some numbers. If you have a credit card with a $5,000 balance, with an 18.9% interest rate, and you make a minimum payment each month of 4% (or $200), it will take you 12 years and 10 months to satisfy your debt obligation to your card company. Your total payments would reach $8,155.22 – or a $3,155.22 profit for your card issuer, and a loss in the same amount for you and your family.
But if you bump up the monthly payment to 10%, that timeframe, and the total payment, declines. With that regular monthly payment, you’d pay your debt off in 4 years and 7 months, and would only total $5,925.69.
What if you cut corners elsewhere, and pay 15% (or $750 per month)? You’d pay off your card debt in 3 years and 1 month, at a total cost of $5,583.09.
Sure, $750 per month is a lot of money for most people. But if you start slow, and increase your payments even by $25 per month, and then to $50 a month, you’ll start to see your debt amount decline, and your mood will likely lift as you realize you’re making maximum efforts to end your credit card payment problem.