Real Cost of Making Minimum Monthly Payments

Are you one of those people who is making a series of minimum monthly credit card payments in order to be able to keep using your credit cards but who is otherwise making no dent in the amount of debt that you have outstanding? If so, you’re not alone. A large percentage of credit card consumers rely on the fact that they can pay very little in minimum monthly payments to be able to have the material goods and services that they desire in life but can’t truly afford. In some ways, this idea is very appealing. But when you look at the real cost of only making minimum monthly payments then you realize that you might want to scale back your purchases and start putting more money down towards paying off that debt. 

The first thing that you need to realize is that the total amount of money that you pay to your credit card company goes up every time that you only make the minimum monthly payment on your credit cards. That’s because the minimum payment typically only pays off the interest rate charged on the card (or slightly more) so you’re not actually paying down the debt much at all. You’re just paying a monthly fee to be allowed to continue to have that debt

If you take a look at the amount that you pay in interest over the life of a ten year loan then you’re going to see that the shoes you couldn’t afford at $150 have now cost you several times more than that in the interest that was paid. Your individual purchases ultimately cost more when you are only making the minimum monthly payment on the credit card that was used to purchase them. This is something that people may be aware of and yet may not fully realize the impact of until they start considering the individual purchases and the total amount paid; the value of the items bought rarely matches the price paid in interest over the years.

Although these costs are important to consider, it is not only financial costs that you need to look at when assessing the true cost of making only minimum monthly payments. You should also look at intangible costs such as the stress that is caused by trying to juggle payments on multiple cards. Many people are stuck in a pattern of buying things that don’t really make them happy and then stressing out over trying to pay off those purchases while still buying more things with their credit cards. Breaking this cycle by committing to paying off the debt that you have could make a big difference in the amount of financial stress that you experience.

Ultimately, the true cost of making only minimum monthly credit card payments is that you’re financially strapped, bound to working solely to pay off previous purchases and generally stressed out as a result. It’s not easy to decide to scale back on purchases in order to be able to pay off big chunks of the debt at once but it’s a wise idea when you consider these true costs.

This entry was posted on Thursday, July 3rd, 2008 at 12:33 pm and is filed under Debt & Consolidation. 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.