When you make the minimum payment on your credit card each month, it may seem tempting, but it is one of the worst things you can do financially.
The Negative Effects of Only Making Minimum Payments
When you only make the minimum payment on your credit card, you are mostly paying interest. Worse yet, your money isn’t actively paying down any of your debt.
Your credit score may also be affected, especially if you increase your balance by continuing to use your credit card. Remember: the closer you are to your credit limit, the more negatively your credit score will be affected by the debt burden.
To get out of credit card debt, you need to create a debt repayment plan, stop using your credit card, and pay more than the minimum amount. These steps can help you pay off that debt and take control of your financial situation.
Consider the Amount You Pay as Interest
When you look at your credit card statement, take note of the amount that is charged as interest each month, then compare it to the amount you are paying.
Some credit cards may only require you to pay an amount that covers the interest. With this strategy, it will take you a long time to get out of debt. Credit card companies do this because the longer you carry a balance with them, the more profit they make.
For example, if you have a credit card with a $6000 balance and you are paying 3% of that amount each month, that means paying $180. Let’s say your annual interest rate is about 14%, which is considered average for a consumer credit card. It will take you 43 months or 3.5 years to pay off this credit card. This assumes that you completely stop using the card and the balance remains unchanged.
If you’re wondering how long it will take you to pay off your credit card, check your credit card statement. There should be a section that shows you how long it will take 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 within three years.
Changing Your Financial Situation
It can be frustrating to realize that you have years of credit card payments ahead of you. But there is hope. If you stop using your credit cards and focus on getting out of debt, you can change your situation.
It may take drastic lifestyle changes and a spending freeze for a short while, but it will be worth the hard work and sacrifices to get out of credit card debt.
You may want to consider getting a second job or look into implementing as many saving strategies as possible to save more money and pay off debt faster. If you don’t have a budget, now is the time to start making lasting changes. You might also want to look at your income and expenses to determine if you need a long-term solution, such as changing jobs to increase your income.
Stop Using Your Credit Cards
Continuing to use your credit cards will only worsen the situation. Don’t assume that just because you meet the minimum payment requirements on your cards that you’re in a good financial position. Minimum payments on credit card debt won’t get you out of debt, and they are not a long-term solution.
Remember that credit card debt significantly reduces your spending power. If you have substantial debt, your options may be limited when you decide to purchase a home or a car. Moreover, many credit card purchases involve goods or services that have no lasting value. Buying a consumer good with a credit card is not a smart financial decision.
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Plan to Get Out of Debt
If you want to get out of credit card debt, you need to pay more than the minimum. You want to pay the highest amount you can afford to stop wasting on interest, pay off debt as quickly as possible, and help rebuild your credit score.
A good strategy for paying off debt is to pay off one card at a time. Once you pay off the first card, transfer everything you were paying on it to the next card. Transferring your balance to a card with a lower interest rate can also help you pay off debt faster.
Using these strategies, you’ll be surprised at how quickly you can get out of debt. Do you have any other tips? Once you’ve paid off your debts, you should consider closing some of your credit cards.
Source: https://www.thebalancemoney.com/should-i-only-pay-the-minimum-payment-on-my-credit-cards-2385753
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