Shatter the Cycle of Minimum Payments

The quickest way to spiral into deeper debt is by planning to only pay the minimum amount on your credit cards each month. Until you can commit to paying more than the minimum, you’ll likely never get out of the vicious rut of debt.

Figuring the Minimum Payment Calculation
Different credit card companies will use a different method to calculate what minimum amount of payment they will accept each month. While the calculation may vary, the percentage of the balance used will be a common factor. This percentage might be as low as the finance charge during the period plus up to 5% of the balance. As a card holder, it is your responsibility to read the disclosure agreement to find out how your specific payment will be calculated. Essentially, however your payment is calculated, if you continue to make only a minimum payment on your account, you will end up putting more and more of your cash towards the interest instead of the balance. Even small balances can stretch out to payments over many years to come.
 

Going Above and Beyond
Minimum payments may seem ideal because they often start out low, in comparison with the overall total balance. People often make the mistake of seeing the low payment and instead of paying more each month, they allocate that “extra” money toward other bills that do not carry interest charges. Over time, the minimum payments will grow, making it increasingly difficult to ever catch up once the amounts get out of control. To add insult to injury, a person with multiple credit card accounts who are only paying the minimum on all accounts, will likely find it impossible to get back on track without the assistance of credit counselors or debt relief/settlement services.
 

Usually embarrassment, pride and feelings of hopelessness, along with financial issues, prevent many people from taking action before it becomes overwhelming. However, avoiding the issue just doubles or triples the problems down the line. Lawsuits, credit destruction, and creditor harassment can come in to play, making a bad situation even worse. To avoid the long road of debt and emotionally instability, there is a simple solution to solving your debt problems before they amount to crisis-level status. By adding an extra few dollars to your payments each month, you will find you are able to make progress. Starting out, add $10 a month to the minimum payment you plan to make. $10 isn’t much but it can go along way to paying off your debt faster. That small amount likely won’t be missed, especially if you know it is going to help your credit. As you continue to make payments, work with your budget and find an extra $10 to add to the next payment. By planning upfront to spend the additional monies, your budget will not get thrown out of whack and your credit card debt will not continue to grow. It may also be beneficial to transfer high interest card balances to one low-interest card but still continue to put all the minimum payment amounts you’ve been sending towards the down payment of one card.
 

Sensible Solutions to Be Debt-Free
As your debt begins to noticeably decrease, you need to remain on target with a plan. When an account is paid off in full, the remaining money usually put towards that bill should now be sent out to cover and pay down other outstanding debt, until alas – you are totally debt free. That portion of money you no longer use for bill payments can be placed into an interest-bearing savings account, college fund for the kids, or take a class in investing if you have never had the cash to dabble in investments before.
 

A debt-free lifestyle is possible if you use your credit card wisely, have a plan to pay it off every month, and work aggressively with a reasonable budget. Even if you feel you are too deep in debt now, it is never too late. It all starts with an extra $10 tacked on to your minimum monthly payments on your credit card accounts and ends with debt-free, worry-free living.
 

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This entry was posted on Tuesday, November 18th, 2008 at 1:13 am and is filed under Debt & Consolidation, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.