The Problem with Paying Credit Card Minimums

Is less more?

Less is definitely more when it comes to strong perfume, heavy foods, tedious paperwork, and tacky yard art. But is less ever more when paying your credit card bill? Granted, paying only the minimum can be tempting. But that eye-catching minimum payment can quickly become very unsightly.

How paying only the minimum hurts you

When you pay the minimum on your credit card, only a minuscule portion of it goes towards your principal balance (typically between 1% and 3%, depending on your credit card provider). The rest goes solely towards interest and other fees. Because you’re not significantly paying down your principal balance, the credit card companies are free to continue charging you lots of interest for an extended period of time.

How $10,000 of credit card debt turns into $21,450

It’s true: If you pay your minimum payments, your debt will decrease—it just might take decades to pay it down in full.

For example, say you have an outstanding credit card balance in the amount of $10,000 and your card has a 13% interest rate. Your credit card provider might only require that you pay 2% of your balance (for a minimum payment of $200). If you continue to only pay the minimum on this debt, it will take you 33 years to pay it off in full.

By the way, the price tag for your interest on this debt over those 33 years would be $11,450.00. And that’s how $10,000 of credit card debt turns into $21,450. What a waste of money!

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The credit card companies like you to pay only the minimum

Needless to say, a credit card user who only pays the minimum payment is a credit provider’s dream. Finance charges and compounding interest are two major streams of revenue that flow into credit card companies. However, the new Credit Card Accountability, Responsibility, and Disclosure Act (scheduled to go into effect in February of 2010) should help credit users to some extent. The CARD Act is the government’s way of protecting consumers from creditors—and, in many cases, protecting credit users from themselves.

The CARD Act mandates that credit providers must display the consequences of making minimum payments. Credit card bills will have to clearly show—in layman’s terms—how long it will take you to pay off your debt if you only make the minimum payment. This should help consumers to remove their rose-colored glasses. We should all stop thinking “less is more” when it comes to paying our credit card bill!


This guest post was contributed by LaShon Fryer. LaShon is a freelance writer and blogger for business publications. When she is not writing, she is busy in her children’s apparel store Bring-2-Fruition. In January she will return to her alma mater, Temple University, to pursue her M.B.A. in Financial Management.

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