Credit Cards: What the Minimum Payment Costs You

Credit cards are a quick, convenient way to pay for purchases. In fact it can be so easy that you give little thought to how much debt you are accruing on your card. Many people rack up huge balances before they know it, but still think little of it. They believe that as long as they make the minimum payment each month it doesn’t matter how high their balance gets. However, paying only the minimum could be costing you a lot more than you may realize.

How Credit Card Companies Make Their Money

Each month, you receive a statement with all of your purchases made in the past 30 days, along with your balance and the minimum payment that is due. If you completely pay off your balance each month, you accrue no interest on your card and the credit card companies make no money.

When you start to carry a balance over from one month to the next, you begin to accrue interest, which is tacked onto your balance for the next month. Even as you make your minimum payment, your card company continues to add on interest. What most people may not realize is that this can add months or even years to the amount of time it takes to pay off your card.

How the Minimum Payment Can Hurt You

When you pay only the minimum amount due, much of your minimum payment actually goes to paying the interest that you have accrued, and only some goes towards your actual balance. As an example, consider a credit card with a $2,000 balance and 18% interest. If you only paid the minimum payment that is equal to 4% of your balance, it would take you over 8 years to pay off your card, and you would pay over $1,000 just in interest. Making only the minimum payment means that you will end up paying the credit card companies much more in interest than you likely expected to pay.

The minimum payment game can become especially dangerous if you have several credit cards with high balances. You may suddenly find one month that you are no longer able to make even your minimum payments because the interest keeps adding to your balances. If this has happened to you, consider consulting with an attorney about the possibility of filing for bankruptcy or entering debt negotiation. There are ways to resolve your debt so that you can get back on a positive financial track.

Contact Us

If you have been caught in the minimum payment credit card trap, it is important to know that there are legal options available to help you. To learn more about debt relief and settling your credit card balances, contact the Boston debt negotiation attorneys of Joshua Spirn & Associates today at 800-975-5346.