Escaping the Minimum Payment Trap

Do you make only the minimum payment on your credit card debt each month? If so, you are ultimately sentencing yourself to a long-term trap of debt.

The Minimum Payment Problem

Most credit card companies allow the borrower to pay what they call the “minimum amount due” each month. If you pay at least that amount, the company will consider your account current and not charge you any late fees.

This may seem the quickest and convenient method of paying your credit card bill each month, especially if you have limited funds and a tight budget.
But, paying only the minimum payment each month will make paying off your debt much longer.

While paying the minimum payment will help you avoid late fees, it does not really help you make progress paying down your balance. Depending on the amount of your balance and your interest rate, chances are only a few dollars of your payment will go toward the balance.

The rest of your minimum payment will go to paying your interest fee. Unless you are using a card with a 0% APR, making only the minimum payment can cause your interest charges to grow along with your balance. So, you could end up having to pay more than twice the original amount you owed.

Paying this increased amount could take you years to pay down the balance. Studies have shown that making only the minimum payment on a balance of $6,000 could take over 20 years to pay off.

Many credit card companies inform borrowers about how long it could take them to pay down the debt using only minimum payments. They often include a “Minimum Payment Warning” on your credit card bill in small print. It may be a table showing you how long it will take you to pay off your balance if you only pay the minimum due each month.

How Can You Escape the Minimum Payment Trap?

The best way to escape the minimum payment trap is to avoid it from the beginning by paying the most you can above the minimum due each month. But, that is not always easy to do, especially if you are on a tight budget or have more than one credit card to pay off, and your credit card debt is significant.

If your credit card debt has reached the level where you cannot pay it off within a few years and it is a major source of stress in your life, then bankruptcy may be a solution for you. Credit card debt is considered an unsecured debt and can often be discharged through bankruptcy. Contact us for a free evaluation to see if bankruptcy could help you escape the minimum payment trap.