Finding Light at the end of your Credit Card Tunnel (And Some Staggering Math)

They are there every month when you sit down to pay your bills. As soon as you start to open your credit card statements, you see them: three of the optional amounts that you can pay. The first is the current balance that has your credit card total, plus all of your recent charges. The second is the statement balance which is the total for that monthly billing cycle. The last and most likely the least is the minimum balance, the smallest amount that you have to pay to keep your account in good
standing each month.

It’s no doubt that paying the minimum amount looks awfully tempting. But before you check that box for the minimum payment, there are some things that you should know. Paying only the minimum amount every month may make it very hard to ever find an end date to your credit card debt. If you want to find that light at the end of your credit card balance, you may want to know the facts.

FACT #1

Paying the Minimum will Keep you in Good Standing*

Credit cards can be a useful financial tool to help you conveniently purchase monthly expenses, as well as an occasional larger expense that you don’t have cash for at that moment. Ideally, you want to pay the statement in full each month to keep your budget in check, but that’s not always possible. There are months that money is tight, or you have more than the average share of
financial burdens, and you can only pay the bare minimum payment. The good news is that paying the minimum will keep your account current and in good standing. Plus, you won’t incur any late fees. While it’s very important to make at least the minimum every month, you won’t want to make this a monthly habit, or it could lead to financial problems in the future.

FACT #2

Paying the Minimum will Keep you in Debt Longer**

The simple fact is paying the minimum amount on your credit card each month will keep you in debt for a longer time because interest will continue to accrue on top of existing interest charges. Take some time to look at your statement which should include a “Minimum Payment Warning” that shows you how long it will take to pay off your balance if you only pay the minimum plus make no additional charges to it. Next, look at the savings benefits from paying more than the minimum each month. Plus, look at how much faster you will pay off the balance if you pay more. You will see that if you pay twice the amount of the minimum, the repayment period gets cut in half and you will save money in the long run. For example, if you pay just the minimum on a ten-thousand-dollar credit card balance with 18% interest, it will take you 609 months to pay it off! (Yes, that’s just under 51 years). If you paid double the minimum each time, it would take 161 months. That’s a difference of 37.3 years.

FACT #3

Paying the Minimum may be a Sign to Evaluate your Spending

If you are having trouble paying more than the minimum each month, it could be a sign of a bigger financial health issue. It’s time to evaluate your spending habits in comparison to your income. The first step is to stop using your credit card so that the balance doesn’t get further out of hand. Take it out of your wallet and even cut it up if you need to. Work on your monthly budget to cut expenses so that you can pay more toward the balance. If there is no room to cut spending, then consider finding another stream of income or getting a side gig and putting that income toward the balance.

If you have multiple credit cards, you may want to consider transferring your balances or consolidating your debt to a lower interest rate option. Consolidating your debt into an installment loan can be the light at the end of the tunnel by giving you a fixed date to the end of your credit card debt. Whatever you do, plan and stick to it. Be prepared and informed so that the next time you are sitting down to pay bills, you are ready to make the best decision possible for your financial health and well-being. No matter how tempting that minimum payment looks, remember than every bit that you pay over that amount helps you chip away on your credit card balance saving you time and money.

*https://www.forbes.com/advisor/credit-cards/what-happens-to-your-balance-and-credit-score-when-you-pay-only-the-minimum-on-your-credit-card/

**https://www.cnbc.com/select/what-happens-if-you-only-pay-the-minimum-on-your-credit-card/

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