Avoiding Credit Card Minimum Payment Traps
If you have some credit cards, then you're probably aware of what a minimum payment is. When you take out a credit card, there is an amount that you have to pay each month to make sure that your account is in good standing. If you don't spend any money on your credit cards, then you're not going to have to pay anything. If, however, you charge something, you will need to pay a percentage of your balance to make sure that your credit is not harmed.
All credit card providers are going to use a different method for calculating minimum payment requirements, but all of them are only going to require you to pay a small percentage of your bill each month. While this might seem like a great thing, it can actually end up losing you a lot of money in the end. A smart consumer is going to be one that doesn't fall into these minimum payment traps and end up owing a lot of money to credit card companies. Credit card debt is harder to get out of than student loan debt, so making mistakes is not ideal.
Use Common Sense
When you sign up for a credit card, you need to be aware of what you're doing by agreeing to make minimum payments. You're going to be paying your credit card company a portion of what you owe on your account and some of this money is going to be the interest that is accruing. The more money that you have charged on the card, the more that you are going to owe in the end. This is one of the reasons why people tend to try and find credit cards with low interest rates. However, even a low interest rate doesn't mean that you won't lose money by making minimum payments.
If you continue to make minimum payments on your credit card balance for a while, you're going to notice something. Your balance is not going to go down that much. That means that you will keep spending your hard earned money on paying these bills, but they will just continue to pile up. If this seems shocking to you, it should not. This is the way that credit card companies have designed the process of giving out loans to people.
When you make only the minimum payment on a credit card, your provider is the one who is going to benefit. Most of the money that you pay in a minimum payment is interest only, so that means it is pure profit for your credit card company. You are never going to get down to really paying off the balance of your loan this way and the credit card company will just continue to make money off of you. It's easy to fall into this trap when money is tight, but it will just end up costing you more eventually.
Paying Off Your Debt
If you're set on avoiding credit card minimum payment traps, then you need to make sure that you can pay off your debts before they get too large and you get financially burdened. If you can make more than the minimum payment each month, then you're going to notice that you will be paying out less in the long run. The credit card companies will not be making so much money off of you, and you'll have more money in the end. Also, try and make sure that you don't charge things unless it's necessary. That way you won't be in the situation in the first place.
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State Guides to Credit Card Laws
- North Carolina
- West Virginia