Maxing Out on the Minimum: Don’t Get Trapped Making Minimum Credit Card PaymentsWritten by Elizabeth Walling
It’s an easy trap to fall into: you get that pre-approved credit card offer in mail, most likely with an appealing introductory interest rate for first six months. You feel like you deserve a little extra spending money, and minimum payment is only 2% of balance; even you can afford that! You promise yourself that you'll start making more than minimum payment after introductory rate expires, and by then you might even get that raise you’ve been expecting from work. However, we all know these plans never turn out quite like you expected. A family member falls ill, and you have to take an unusual amount of time off of work, meaning you won’t be getting that raise any time soon. Then when car breaks down, you have to use any extra spending money you have to repair it just so you can get to and from your job. You can still afford minimum payment on your credit card, though, and you decide to just stick with paying that. After all, what difference could it make?
The truth of matter is that it can make an enormous difference. The minimum payment is perfect amount to ensure you will be paying on your balance for years and years to come. In end, you could be paying several times more than your original balance in interest charges alone. It may not seem plausible, but it’s hard to ignore when you have numbers right in front of you. Here are two examples of what happens when you make only minimum payment on your credit card:
Let’s say you have an meager $1,000 balance on your credit card, which has average interest rate of 18%. Your minimum payment is $20 per month. If you pay minimum payment, you will be paying off this balance for eight years, and you will pay more than $850 in interest charges.
| | How to Handle and Avoid Credit Card DebtWritten by By Laurel Fisher
If you are trying to avoid credit card debt, it probably seems like entire world is working against you. Anyone with a mailbox receives hundreds of credit cards offers every year. And although credit cards can be lifesavers when used responsibly, they can become nightmares when used recklessly.
The first step to avoiding credit card debt is to avoid credit cards. Now, this does not mean that you should never use a credit card. For certain transactions, especially ones made over Internet, credit cards are usually considered safest payment method. However, you should avoid putting every day purchases on your credit card, lest they quickly add up. If you cannot afford a purchase with money that is in your wallet or in your bank, ask yourself if you really need to make purchase after all. If you do need to buy something and credit card is your only option, try to pay debt off as soon as possible.
When picking a credit card, do not be fooled by low introductory APRs. If rate jumps in a couple of months, then credit card is not a good deal. Instead, look for credit cards that have a continuously competitive rate. You can even try calling your credit card company and asking for a lower rate. Although it might take a bit of negotiating, many credit card companies will lower your APR rather than lose you as a customer.
No matter how low you APR is, do not think that it is okay to only make minimum payments. If you only pay minimum fee, it will take you years to pay off credit card. In meantime, you will accrue more debt in interest. For example, if you have $2000 in credit card debt and have a rather low APR of 14 percent, you will still have to spend over six years paying off credit card if you make a minimum monthly payment of $40. In this scenario, you will end up paying over $1000 in interest. With a higher APR, you would pay considerably more. Obviously, making higher payments as soon as possible is best solution.
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