Making minimum payments for a while to establish credit history may make sense. However, most of us know paying only the minimum payment each month on credit card balances can cost a bundle and take forever to pay off.
Each card is different, but generally it’s the same concept. You pay the minimum payment every month and a portion of your payment gets applied toward the principle while the remainder goes to the credit card company; they call it “interest”. Obviously, the best way to minimize your interest is to put every extra penny towards your credit card debt – but that`s not always realistic. Many people would rather pay more interest in the long run than give up all their comforts.
This is the trap that most of us with debt fall into. You take a simple purchase and put it on your credit card. Maybe you even have the intention of paying off the balance in full at the end of the month. But if that doesn’t happen, don’t worry. The credit card companies make it unbelievably easy to keep the payment affordable and only require you to make a minimum payment each month to stay current. That can certainly help your cash flow situation out, but it’s doing far more damage than you might imagine.
The problem with minimum payments is that the debt continues to gain interest, possible late fees and essentially the balance goes up over time. The longer you carry a debt, the longer the interest will have to accrue (unless you`re on an interest-free contract). Depending on the applicable interest rate, your debt could actually increase over time, even if you stop using your credit cards. Bear in mind that the interest rate could be 30% percent or higher.
At best, making minimum payments is like treading water; you are doing little to eliminate your debt. In fact you could be paying your creditors for the next 20 to 30 years (or longer!). In essence this is your worst choice because it gives you the least benefit, and you could end up paying the debts for the rest of your life. Making just the minimum payments means your credit card debt will almost certainly cost you a lot more, and take you a lot longer to repay. In some cases you may have paid double the amount you actually spent on the credit card itself.
Check it out for yourself! Compare Your Options for getting out of debt or contact one of our Debt Counselors today!
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