Paying the Minimum Payment on Your Credit Card Can Cost You a Fortune

In the December issue of Money magazine, they have a graphic titled "The Gift That Keeps Giving" with a sub-line of "Why good boys and girls buy their presents with cash." They then share the following stats:

• $907 spent on December 25, 2006 - The average amount Americans are projected to spend on holiday gifts. Many will put purchases on their credit cards.

• $1,225 paid off by March 25, 2013 - What (and when) you'll finally pay for those gifts if you make only minimum payments on your credit card bill assuming a 13.9% APR.

A few thoughts on these facts:

1. I would have guessed that the average American spent much more than $907. The number must be brought down by thousands on the low-end spending next to nothing.

2. We are a bit below $907 in our budget for Christmas spending.

3. We put as much of our Christmas purchases as possible on our credit cards. Doing so helps us earn extra money.

4. We pay off our credit card bills EVERY month. We've done this for the past 15 years.

5. Yes, paying the minimum on your credit card bill will cost you a boatload.

6. The time it takes to pay off the amount at the minimum is amazing -- over six years. Imagine what happens to people who buy too much year after year after year and only pay the minimum. That's how debt can pile up and become a mass that people can't handle.

If you do need help with debt and credit cards, see Best of Free Money Finance: Debt Posts and Best of Free Money Finance: Credit Card Posts.

Comments

[The Best Ways to Pay off Your Credit Card Debt]

This is a nice blog, thanks for the info, keep on posting relevant issues/topics.
You've done a great job in getting your credit cards but like a lot of people, you may find yourself in a bit over your head because life has a way of throwing obstacles in your path and those obstacles generally cost money.
Here is another resource I'd like to share about The Best Ways to Pay off Your Credit Card Debt. Hope you'll find it and your many readers very useful.
Have a super day!

[Steve]

FMF,

I was interested to see that you have a Pay Day Loan company as one of your sponsors - isn't this the sort of thing you would be against your readers doing, what if your site turned them onto one of these loans? Just wondering as a long time reader...

[FMF]

Steve --

I've addressed that issue previously a couple times. The bottom line: those are link ads at the bottom of the site that very few (if anyone) ever see. They are placed there by the site owners for SEO purposes.

[new credit card application]

The minimum payment is usually 2% of your outstanding balance. Unfortunately, by paying only the minimum each month instead of paying off your entire balance, your debt will continue to grow. Many credit card companies also charge late fees (usually 2 percent of the outstanding balance), and higher interest rates on cash advances.