Only Paying the Minimums Payment on Your Credit Card? Prepare To Be in Debt for 42 Years!

Most of us know that only paying the minimum payment on our credit cards is generally a bad idea, but there are a lot of people pinched financially right now, so it’s not much of a surprise that one out of every three Americans only pays the minimum required payment on their credit card balances. A lot of people pay the minimums with the intention to pay more on their debt later on when they’re doing better, but quite often that time never comes, and they continue to pay the minimum payment on their cards indefinitely.

So how long will it take you to pay off your credit card debt paying only the minimums? The Los Angeles Times did a study on the topic, and they discovered that a typical card-holder that paid an 18% interest rate on their credit card (which is actually a lot lower than what many are paying) will be in debt for over 42 years. People paying only the minimums will be in debt this long because the minimum payments are a very small percentage of the amount of money they owe each month, and most of their monthly payment goes towards the interest on the loan itself, rather than the principle balance of the loan.

Banks will often lower their customer’s monthly payments over time in hopes of getting them to pay more in interest by keeping them in debt for longer periods of time. If a credit card company does this to you, don’t fall for it. Continue to pay your old minimum payment and even more money on top of that to eliminate the principal if you can.

If you can only afford to pay the minimum payment, there’s a strategy that’s promoted by a lot of financial planners that is based off paying a half payment every two weeks. Since interest is calculated daily, if you send in some of your payment early, you’ll dramatically reduce the amount of interest that you pay over time. If you also pay bi-weekly instead of once a month, you’ll end up paying 26 half payments per year, which equates to an extra payment of the principal balance.

The mathematics of this strategy are quite mind-boggling. It turns out that the between the amount of money you save by not paying as much interest on the loan, and by making the equivalent of an extra principal payment each year, that you’ll be out of your credit card debt in literally 1/4^th the time you would have been otherwise. To do this, write on your calendar every two weeks (14 days), and on that specified day, write a check (or pay online) of half the amount of what your payment would normally be, and it’s as simple as that.