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Making the Minimum Payment

Minimum Payment = Maximum Pain

If you really want to mess up your financial life, paying just the minimum amount of your credit card bill each month is a good place to start.

When you get your monthly bill, you'll see what you owe; right next to it will be a much less scary number: the minimum payment. Technically, you could keep paying the minimum forever and ever and stay in debt for decades.



College student Sarah ran up her credit card to $3,100 and has an annual interest rate of 20%. She has two options: pay off the whole amount or just pay the minimum.

The minimum is often just a few percent above the interest rate. So if Sarah's annual rate is 20%, her credit card company might just charge her a minimum payment of $62. That's a lot more affordable than $3100 all at once, right? Sarah can afford to pay her bill and still have enough left over to, you know, eat.

Just one problem: paying just the minimum amount each month will be incredibly expensive long term.

You just paid the minimum payment? WHAT WERE YOU THINKING?

If Sarah keeps paying the minimum and never adds another penny of debt to her $3100, it will take her 44.5 years to pay off the debt—and she'll fork over $12,625.82 in interest.


Why would it take so long to pay off a few Gs? It's because most of the minimum payment goes toward the interest. The principal—or the amount of cash Sarah borrowed that she's having trouble paying off—remains pretty much the same and only gets chipped away at very, very slowly.

How Much Longer Is This Going to Take?

If you're feeling brave and have credit card debt, feel free to head over to the Bankrate online calculator to see how long it'll take you to pay off your debt—and how expensive it'll be. Fair warning: the numbers may be grosser than what you threw up last month when you had the stomach flu.

If Sarah doubled up on her payments and paid $120 per month on her credit card bill, it would take her less than three years to pay down that $3100 and she'd end up paying only $988.06 in interest. That's still a lot, but at least she'll have all her teeth by the time she pays it all off.

Sarah's not alone, BTW. About half of everyone in America who has a credit card pays less than the full amount each month. It puts a sparkle in the eyes of the credit card companies, but it also hurts everyone's finances because it's hard to get out of that circle of debt. Plus, the money being paid in interest could be better spent on investments…or Chubby Hubby.

Your call.

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