Making Only the Minimum Payment on Credit Cards?
The minimum payment on your credit card is determined by taking a percentage of your balance of your balance and charging you that percentage each month. This amount is a very small percentage of your balance, usually about three percent, and it would take you years to pay off your credit card if you followed this payment schedule. The minimum payment mostly covers the interest that you are paying on your credit card each month.
Making Only Payments Has Negative Effects
When you are only making minimum payments on your credit card, you are paying a lot in interest and lowering your overall net worth. it can also negatively affect your credit score, especially if you keep adding to the balance each month. The closer you are to the limit the more it will affect your credit score. You need to work on paying down your credit card balances in order to show that you are in control of your finances.
Consider How Much You Are Paying in Interest
When you look at your credit card statement, look at the amount you are charged in interest each month, some credit cards only have you make a payment that barely covers the interest, and it will take you forever to get out of debt. For example, if you have a credit card with a $6,000 balance, and make a three percent payment each month, this a $150 payment. $50 of this covers the interest, and it will take you 210 months or 17 years to get out of debt.
Over time the amount of your interest will be over $2000. Your statement should have a box that shows you how long it will take you to pay off the card if you make the minimum payment, as well as the amount you need to pay each month to pay off the credit card in three years. Your statement should also include the number of years it will take you to pay off your credit cards if you only make the minimum payments.
Change Your Situation
It can be discouraging to realize that you have years of credit card payments ahead of you, but if you stop using your credit cards, and really focus on getting out of debt, you can change the situation. It may take serious lifestyle changes and a moratorium on spending for a short period of time, but it will be worth the hard work and sacrifice to get out of credit card debt. If you really want to change your situation, you may want to consider getting a second job or consider implement as many savings strategies as possible to change your budget. If you do not have a budget, this is the best place to start to make lasting changes. You may also want to look at your income and expenses to determine if you need a long-term solution that results in you earning more money.
Stop Using Your Credit Cards
Continuing to use your credit cards will only worsen the situation. It is not okay to assume that because you can meet the minimum payment requirements on your cards that you are okay financially. Credit card debt drastically reduces your spending power. If you have too much, it can limit your choices when you decide to buy a home or a car. Many credit card purchases are on goods or services that have no lasting value.
It is a poor choice every time you choose to spend on a credit card.
Make a Plan to Get Out of Debt
When you decide to get out of debt, you will need to begin making more than the minimum payment. You need to increase your payment as much as you can, but it is smarter to increase only one payment at a time. This increases the power of your payment, and will allow you to get out of debt much more quickly. Once you have paid off one card, then move all that you are paying on it to the next card. Transferring your balance to a lower interest card can help you pay down the debt more quickly. You'll be surprised at how quickly you can get out of debt. Once you have paid them off you should close your credit cards.