The Misunderstood Minimum
It is common for consumers to depend on the minimum payment option to keep their credit card bills under control each month. It allows you send to send off a check so you don’t have to think about the much more unpleasant number, your total balance, which is also on your statement. Credit card companies don’t complain as you long as you send off your minimum payment on time, so what’s the harm? Actually, the harm can be huge. If you follow this practice on a regular basis, you may soon find that you have turned your initial credit card balance into a debt that is far too big for you to pay off based on your monthly paycheck. If you compound this problem by continuing to make new charges on your card each month, you could soon find that your credit card molehill has turned into a mountain of debt.
That credit card minimum payment is currently averaging 4% of the total outstanding balance. That has actually come up from the old standard of 2% of outstanding balances. This change was actually forced on the credit card industry by a congress that was concerned by the financial and political impact of an indebted credit card constituency. They were wise to be concerned.
Even with consistent payments made on time at the minimum payment rate, it can take many, many years before a debt is paid down. In order to actually make a dent in the total, it is necessary to attack the principal of the debt and not just pay on the new interest payments. If you fall victim to the habit of paying only the minimum, you will soon find yourself in a cycle of perpetual credit card debt.
There are some simple credit card debt elimination strategies, but they all start by ignoring the myth of the “minimum” payment amount. The minimum payment, practically speaking, is the amount that will keep you where you are and not the amount necessary for you to pay off your accumulated debt. The first step is to ignore the temptation of the minimum monthly payment and instead, pay as much as you possibly can each month.
Of course you also need to stop adding to your overall debt each month. The best plan is to stop using your credit cards for any new purchases. You may want to look into transferring the balances to a low or zero percent interest credit card. Of course you don’t want to make the situation worse, so be certain to research these types of credit cards first and read all of the fine print before you take advantage of these deals.
Once you have decided to pay down your debt without adding to it, you will be amazed at how quickly you will find that frightening total balance disappearing. If you make it a steady habit to pay more than the minimum without adding to your total balance, eventually you will find yourself debt free. It may take some time, but if you stick with it, you will be successful in the end.
If you haven’t yet found yourself stuck in credit card debt, do you still have to worry about making only minimum payments? The answer is yes, if it becomes a habit. The minimum is exactly that: the absolute least that you can get away with. While everyone may have a day or a month where that is all they can manage, no one wants that to become a way of life. Remember: The minimum payment is not your friend.