Stop Paying The Minimum Payment On Your Credit Cards
Keywords: debt relief
Credit cards are there to put you in debt and keep you in debt. When they do it, they have one tool at their disposal that is more effective than all the others. It’s called the minimum payment.
What’s a Minimum Payment?
Your minimum payment is the absolute minimum that you must pay off each month to avoid defaulting on the debt. If you don’t pay your minimum, they’ll come after you - but don’t make the mistake of thinking its just fine to only ever pay that much.
Why are Minimums Bad?
They never used to be. Minimum payments used to be set at relatively high percentages, anywhere from 5% to 10%. This meant that you paid more, but your debt would get paid back faster.
Credit card lenders realized, though, that they could set the minimum payments lower, and collect a smaller amount of money each month for a much longer period of time. This would let them tell people that debts on their cards were ‘affordable’, while they raked in the cash over the long term, thanks to the power of compound interest.
Here’s an Example.
Let’s say you owed $1000 at an interest rate of 12.7% per year (1% per month). Your minimum payment is 5% per month. Remember that your payment goes towards the interest first, and then the debt. In this example, $10 out of the $50 you paid would disappear as interest - but $40 would still go towards paying off the debt, meaning that your debt the next month would be $960.
What happens if you change the minimum payment to only 2%? Well, the difference is enormous. Sure, you’re only paying an ‘affordable’ $20 - but $10 of it is still going on interest. That means that your $20 has only paid back $10 towards the debt, and you still owe $990!
There are so many people who just look at the interest rates they’re being charged, and don’t understand the terrible difference it can make if you only ever pay the minimum payment. In our example (which is relatively typical), 50% of the payment was going on interest - meaning that paying the minimum gets you an effective 50% interest rate, even though your APR was only 12.7%. For higher interest rates, it only gets worse: there are cards out there where only making the minimum payments will actually cause you to owe more each month, not less!
So What Should You Do?
The answers aren’t fun, but they are true. Firstly, look for a card with a high minimum payment - this is a good way to discipline yourself into paying off the debt faster.
Secondly, always pay more than the minimum if you can afford to. I know it feels like money for nothing, but isn’t it better to pay it now and get it over with, instead of paying it for the rest of your life?
Gregg Hall is a business consultant and author for many online and offline businesses and lives in Navarre Florida. For more on this and other debt relief strategies go to www.monsterdebtrelief.com
Previous Articles Highlighter:
Things To Consider Before You Get A Debt Consolidation Loan (1)
Don't fall into this trap! Consolidating your debt and then running up more is an extremely bad idea. You Could Lose Your Home. Of course, this is the absolute number one most dangerous thing about debt consolidation.
Some Of The Top Credit Card Mistakes (2)
They have trouble keeping track of all the different cards, balances and interest rates. Don't be one of these people. You should limit yourself to a maximum of three cards at a time - any more starts to make you look over-committed in your credit report, and could get you turned down for a bigger loan.
How TO Buy A Foreclosed Home (3)
Most liens that are placed on foreclosed properties are for unpaid taxes. Interested buyers should also check the values of the neighboring properties before entering into a contract, to make sure they would be getting a fair market value.
A Closer Look At Day Trading (4)
A fluctuation of at least $2.00 per day is recommended. Finally, a day trader evaluates the price transparency of stock. This term refers to the ability to gather information on the order flow of a stock.
Why Credit Cards Destroy Your Debt Reduction Plans (5)
You still have all the things you started with - there's no less money in your purse or wallet to remind you of what you've spent. Everyone has a tendency to underestimate what they spend, and smaller amounts can add up quickly on a credit card without you even noticing.
Are Cash Back Credit Cards A Good Or Bad Idea? (6)
However, there are credit card companies that offer these cards to people with a low credit rating to help them rebuild their credit. Research all of your options. What should your decision be?
Got Bad Credit And Need A Car Loan? (7)
Read through the credit report and note the negatives. There may be some bad accounts that you forgot or did not even know you had. Some may not even belong.
Some Ideas For Debt Negotiation (8)
It might seem strange, but they're happy you're paying at all - there are plenty of people who just don't pay and have to be chased, costing their creditors time and money.
How To Quickly And Immediately Improve Your Credit (9)
Usually, as a rule, they are similar, but negative items or entries do tend to stay longer on some then others and some tend to have more errors in their entry reporting.
Why You Shouldn't Save When You Have Debt (10)
We don't always do what's best for us - instead, we do what feels best, and try to blank out any reasons why it might not be the best thing to do.
Credit Card Debt Statistics (11)
Most people have a reasonable sense of what they can afford, and won't go out and use credit cards to buy things that they wouldn't usually be able to pay for.
How To Get Approved For A Car Loan After Bankruptcy Or With Bad Credit (12)
This is actually illegal and a violation of the Fair Debt Reporting Act. If you find any fraudulent reporting like this hire an attorney and sue the violating company.
How To Save On Your Auto Insurance Like George Bush (13)
Another great way to save money on auto or car insurance is to drive a vehicle with a low theft rate. It is a proven fact that insurance companies charge higher premiums based on car brand and model theft rates.
Rising Car Arson And Insurance Fraud Costs Everyone (14)
In California they have even linked new and used car dealership personnel as instigators in many arson cases. Someone comes into the dealership overloaded with debt and wants to get out of a high car payment by trading in their car or vehicle.
Car Dealer Scams (15)
However you should never pay over the MSRP of the car or even close to the MSRP, if the car is more highly demanded then the maximum you should pay is the MSRP (or better yet wait a few months until its popularity wains and buy it at invoice).
Get Out Of Debt Free Article (16)
Please pass this article on to everyone you know as you will help more people than any donation could - take a moment to help someone as I have done for you.
What You Need To Know About Debt That The Credit Card Companies Do Not Want You To Know (17)
If you have a balance, and most people do as the average credit card debt is now between 9 and 10 thousand dollars, make a plan to pay it off as quick as possible.
How To Get Debt Collectors Off Your Back Permanently (18)
Don't threaten the collection agency th at you have these rights - use them. Bring the collection agency to its knees if they are violating your rights. The other problem is are these bills, debts even correct?
How To Qualify For The Best Rate On Your Mortgage Or Refinance (19)
It isn't hard to get some dings off your credit and this will save you a lot. 2) Get all your documentation together. This may sound trivial, but you wouldn't believe the number of people that don't do this well, and pay steeply with higher rates and points as a result.
Boost Your Home's Resale Value Guaranteed (20)
Have the lawn professionally cut (they will edge your lawn, remove weeds, etc... for $30 or so per session) - it shows you care and cared for your house.
Newer Articles Highlighter:
Here Are Some Considerations When Applying For Credit Cards Online (1)
Some of the factors that are important to remember when you are using the internet to make application for credit cards are these: First of all take not of what you are getting a credit card for in the fist place.
Buying A Car? Do These Things First (2)
Beware of a low down payment or long repayment plans. The more you borrow and the longer you take to pay the loan, the more interest you pay and the more your car will cost you in the end.
Before Considering Bankruptcy Try These Things (3)
It's a long, painful process with a huge stigma, and you're unlikely to be able to get any kind of credit for ten years afterwards. Yet bankruptcies are on the rise.
So Why Would I Want A Prepaid Credit Card? (4)
This works much the same way and the prepaid cards are accepted anywhere their regular counterparts are. Some of the advantages of prepaid credit cards include the following: Prepaid credit cards are much easier to qualify for and receive than a regular credit card.
How Do I Know If I Should Buy Or Lease A Car (5)
With a lease you are essentially renting the car from the dealership. The lease is like a rental agreement. You make monthly payments to the dealership. But the car does not belong to you.
How To Get Free Travel From Using Your Credit Card (6)
For travel point rewards for example, a 1 dollar purchase transaction sometimes equals 1 travel reward mile. The number of travel miles will usually depend on the travel destinations, the credit card company's rewards program and the airline companies they have tied up with in their air miles points program.
How Your Credit Score Can Get You Better Rates (7)
This calculator is used to calculate your credit score. It is found to be the most accurate, however, it is not perfect, so as with anything errors can occur which is yet another reason that you should stay on top of your credit score.
A Closer Look At Instant Approval Credit Cards (8)
It only means that you are qualified to apply for the credit card. The credit card application will be your next step once you have been given the "go signal" by the bank.
How Do I Know What The Best Credit Card Would Be For Me? (9)
I am sure that you have heard by now of cards that reward you for using them with points that can be redeemed for products and services. One of the most popular of course is the one that gives you air fare, also sometimes called a "Miles Card".
How To Compare Credit Cards To Get Your Best Deal (10)
If you wanted to sign up for these packages, think, think, and think! Will they really be of help to you or are they just there to make your credit life miserable?
Some Of The Main Reasons We Need Credit Cards (11)
Keywords: credit, credit card, secured credit card Practically everyone in the United States has credit cards. From teenagers to retirees, almost everyone has at least one credit card. Everywhere we go we see ads - in the television, radio, newspapers, and billboard advertisements - on credit cards.
What Does A Zero Interest Credit Card Really Cost You? (12)
It sometimes makes sense to switch to save the interest charges, just don't fall into the trap of letting the balance ride. Take advantage of the interest charge reprieve and pay the balance off.
How To Get Easy Grants For Small Businesses From The Government (13)
As the old line says "give a man a fish and you feed him for a day, teach a man to fish and you feed him for life." The success of these businesses can only be beneficial to the government in the long run so the advice given is definitely the best.
Some Of The Things You Need To Consider When Looking For Debt Solutions (14)
This way you can repay what you owe and hopefully not make your credit standing worse than it already is. Gregg Hall is an author living in Navarre Florida.
If You Are An Investor You Should Be Using An Online Brokerage Service (15)
With Sharebuilder, there are tons of selections to consider when looking for online banking services. There are a great amount of various funds and stocks to choose from when you are ready to create a portfolio.
Some Of The Key Things You Need To Be Aware Of When Buying Foreclosed Properties (16)
This option is definitely for the more experienced purchaser and you would need to be really driven. For anyone thinking about purchasing a foreclosed home, it is important to make these decisions on an informed idea of what you are getting into.
How To Make The Home Buying Decision Easier (17)
Some banks can offer better interest rates than others. Your interest rate may also depend on your credit score. You want to find the bank that will give you the lowest interest rate, as this will also affect your payment.
How To Choose A Checking Account That Will Fulfill All Your Needs (18)
Another benefit is a small life insurance policy. These policies held by the bank are usually for the amounts between five and ten thousand. They also give the customer the opportunity to upgrade this policy if they wish.
How To Unravel Fact From Fiction When Deciding On The Right Credit Card (19)
Usually you start out with one interest rate, and if you make late payments they will up your interest rate. You will want to know what the default rate will be on your card just in case they try to do this.
How To Find The Best Mortgage Options Online (20)
A buyer should also ask if the closing costs include appraisal, credit report, and third-party fees. Ultimately you want a site that's going to pay off for you. So keep an eye out for a great deal, like no-cost loans, and you will find yourself thoroughly enjoying the buying process.
Permalink to Stop Paying The Minimum Payment On Your Credit Cards