Have you ever noticed how every month your credit card's minimum monthly payment goes down? Credit card providers base your minimum payment on your current balance, which in the short-term appears great because your overall payment is always going down. But is it really that great? Let's look at what this practice really means in the long-run for your current credit card debt in terms of total cost and time.
Let's use an example credit card with
- Balance of $5,000
- APR of 15.99%
- Current minimum monthly payment of $110
Below are the total costs in time and interest for this credit card if you the consumer only paid the minimum monthly amount each month as required by your provider.
- Almost 25 years to pay off
- Total payments of $12,006
- Total interest paid to the credit card company $7,006
From this example, you can see that this initial $5,000 has cost you A LOT more in the long run by having paid only the minimum monthly amount required of your monthly statements. How can you prevent this from happening to you? By reducing both the time required to pay off the debt and the interest charges this debt accrues.
There are ways to reduce your time and interest paid on that credit card. Lets continue to use our example credit card with
- Balance of $5,000
- APR of 15.99%
- Current minimum monthly payment of $110
- About 9.25 years
- Total payments of $8,248
- Total interest paid to the credit card company $3,248
- Almost 6 years
- Total payments of $7,810
- Total interest paid to the credit card company $2,810
