It could take you decades to get out of debt this way.
Making the minimum payment on your credit card isn’t always a bad thing. It’s definitely better than falling behind, racking up late fees, and ruining your credit. But if you’re trying to get out of credit card debt, you’re unlikely to get there by paying the minimum, especially if you keep charging your credit card for new purchases.
Making the minimum payment will save you trouble with your credit card transmitter. But if you only pay the minimum, it will cost you a lot of money, maybe thousands of dollars. Here is an example to show you what I mean.
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How much will just the minimum payment cost me?
The average American with credit card debt has a balance of $ 6,028, according to The Ascent’s survey of credit card debt statistics, and the average credit card APR is 17%, according to the New York Federal Reserve. If you had that average balance of $ 6,028 and your credit card issuer required a minimum monthly payment of 2% of your balance, you would pay around $ 120 in your first month. This minimum payment would decrease as your balance decreased.
If you chose to make only the minimum payment and your card had an APR of 17%, it would take you 444 months, or 37 years, to pay off your debt. And you would pay about $ 13,382 in interest on top of the $ 6,028 you owed – all because you were meeting the minimum payment each month.
In reality, you will likely end up paying a lot more than that, as most people keep charging their credit cards for new purchases, which increases their balance rather than decreasing it over time. Those who get stuck in this cycle will likely never get out of debt if they continue to meet the minimum payment.
How much money can paying extra save me?
Paying extra can save you hundreds, if not thousands, of dollars and get you out of debt faster. But it depends on how much you can afford to pay each month. Using our example above, if you could pay $ 150 per month, which is only $ 30 more than your initial minimum payment, you would pay off your debt in 60 months and pay only $ 2,954 in interest. If you could afford to pay $ 200 per month, it would only take you 40 months to pay off your debt and you would only pay $ 1,889 in interest.
You should aim to pay as much as you can afford each month in order to get rid of your credit card debt as quickly as possible. Consider using a balance transfer card so you don’t have to worry about interest for a few months while you try to get your debt under control. You should also limit the amount you charge on your credit cards in the future. More purchases will increase your balance and just make it harder to pay off.
What if I have debt on more than one credit card?
Consider using the avalanche of debt method if you have debts on more than one credit card and want to get rid of it as quickly as possible. Make a list of all your credit cards and write down the balances and APRs on each one. Place them in order with the card with the highest APR first and the card with the lowest APR last. If two cards have the same APR, place the one with the higher balance first.
This strategy is to make the minimum payment on some of your credit cards, which, as we just said, is not ideal. But in this scenario, it makes sense because you make the minimum payment to avoid late fees, and then use whatever extra money you can have to pay off the card at the top of your list. When this is paid off, you move on to the next credit card, and so on, until you are debt free.
You can also try putting all the debts on one balance transfer card, as I mentioned above, or taking out a personal loan. Personal loans may have high interest rates, but they also have predictable monthly payments. This way, you don’t have to worry about growing your balance, as long as you don’t charge more on your cards.
Credit card debt is a difficult burden to bear. Making the minimum payment may give you a bit more leeway to spend money on other things now, but it will likely come back to haunt you in the end. Make paying off your credit card debt a priority so you can get rid of that weight as quickly as possible.