Sending in just your minimum credit card payment is the worst thing you can do for your debt — other than not paying it at all. Minimum payments are designed to keep you in debt as long as possible, even when paying off small amounts of debt. So even though you think you’re chipping away at your balance, often you’re not.
I learned this the hard way when I had to pay off a credit card. I would pay the minimum and sometimes a little extra, but every time I looked at my balance, it remained virtually unchanged. It wasn’t until I got off the minimum payments cycle that I started to make headway on paying it all off.
Here’s what I learned about credit card minimum payments.
Credit card minimum payments: An endless loop
First of all, don’t feel bad if you’ve been paying nothing more than the minimum. The National Bureau of Economic Research did an extensive survey of U.S. credit card debt and found that 29 percent of account holders were doing just that.
The New York Times highlighted a significant finding from the study — those who could pay more often didn’t. Instead, they were “highly sensitive” to the minimum due. In other words, many followed directions rather than analyzing whether they should pay more.
This can be costly. Here’s why.
In this example, we’ll use the current average interest rate (13.61%) and credit card debt amount per cardholder in the U.S. ($4,061). If you had a minimum payment of 2 percent, your monthly minimum due would be $81.22. If you only paid that every month, it would take more than 22 years to pay off the card. And the amount paid in total would be a whopping $8,761.60.
But what if you doubled your monthly credit card payment? It would be a potentially still-manageable $162.44. And that would reduce your repayment time to just over nine years, with a total balance of $5,588.23.
By doubling the payment, you can shave 13 years off the debt repayment and save almost $3,200 on the total balance.
How to find room to pay more than the minimum due
The question for some might not be why you should increase the amount paid on a credit card, but how to increase the amount paid. If that’s the case for you, here are a few things you might want to try.
1. Reduce your credit card interest rate
The best way to gain traction on your repayment is to reduce your credit card interest rate. Believe it or not, one way to do this is to call your credit card company and ask them to reduce your rate. If you have a positive history with them, they might be willing to accommodate you.
If you do get a lower rate, a larger portion of your monthly credit card payment will go toward the principal balance — but you’ll still want to pay more than the minimum.
2. Consolidate or refinance your credit card debt
Another way to lower your interest rate is to consolidate or refinance your credit card debt with a balance transfer credit card or a personal loan. These are products that can pay off your credit card (or cards) and help you snag a lower interest rate.
Again, lowering the interest rate can sometimes lower your monthly payments, but more importantly, it can help more of your money go toward the balance.
3. Redo (or start) a monthly budget
If you’ve never created a budget, now’s the time to start. And if you already have one, redoing it can sometimes do wonders.
You might find there’s room for flexibility or things you’re just not interested in continuing to pay for. It also helps to realize that you don’t always have to cut items from your budget. Just reducing the frequency of those items can make a big difference.
Then apply any extra money you find to add more to your credit card payments.
You can beat the credit card minimum payments game
Once you understand how little paying the minimum does for your debt payoff strategy, you have the opportunity to do something about it. Whether it’s refinancing your debt, configuring a new budget, or even finding a way to earn extra money to help with your payments, there are many things you can do to make an impact on your debt.
As long as you don’t succumb to a debt repayment that’s too long and expensive because of minimum payments, then you can win the credit card game and reach debt freedom.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000|
|6.26% – 14.87%1||$5,000 - $100,000|
|6.99% – 35.97%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|4.99% – 29.99%3||$10,000 - $35,000|
|5.99% – 18.99%4||$5,000 - $50,000|
|15.49% – 34.49%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|