While it may feel like you’re saving funds by sending the minimum amount due on your credit card, the truth is, you’re really paying much more. This season of the year more than others, the temptation to only pay the required amount and convincing yourself you’ll have more money to spend on gifts and yuletide cheer is a problem for a lot. No matter the balance of debt you currently have, this info will show you the need of paying more than the minimum – something that could save hundreds of dollars over time. How’s that for a stocking stuffer?
I have been asked lots of times if it is lower cost to have a debt consolidation loan or many credit cards, some with zero interest. The first thing you need to decide is how quickly you want to pay the debt off. The best piece of knowledge is that you pay it off as efficient as possible. Let’s show a look at the effects of making the minimum monthly charge on a credit card.
With lots of credit card companies are being nice and allowing even lower required payments you may say this is a good thing. And you may be right if you are really down, but watch out, it is costing you a fortune over time, which knowingly is why they do it. Yes, I know it is a shock, you assumed they were just being friendly! Unlike a debt consolidation loan that has set monthly charges (Assuming rates don’t change), you can vary the monthly charge on a credit card. For example, if you have a credit card debt of 3,000 with an APR rate of’ percent (Annual Percentage Rate) and the required charge allowed is 3%. In this case the minimum monthly charge is 90. By making this payment and not using the card for anything else, it will take 12 years and 5 months to pay off this card, and you will have paid a total of 2,714.16 in interest!
So, the following month you receive a letter with your statement saying that you are such a great customer they are going to lower the minimum charge to 2%. Nice, you think, I’ve only got to pay 60 month and I can spend another 30 down the pub. But lets see at what you are really paying. By making the new minimum payment only, it will now take you 28 years and 5 months to pay off your debt and you will be paying a whopping total of 7,845.73 in interest. This is an extra 16 years and 5,131.57 in extra interest, rather an expensive trip to the pub I would say. So, maybe the credit card company isn’t being so friendly after all, maybe a debt consolidation loan with it’s higher monthly payments isn’t such a bad idea.
Yeah, I can hear you asking, but what about the credit card with no interest, well, that is different article, but basically a lot people forget to change at the end of the period and end up with high interest.
Given these facts I would recommend you to pay more than the required payment and pay of the credit card debt as soon as you can. If you’re unable to pay even the required, a debt consolidation loan with a lower interest rate and a shorter term or debt settlement may be options to look at.
If holiday spending has your credit cards maxed out, then get debt help from Debt1Options to start to settle credit card debt today.
