Here's why you need
to pay more each month... Many consumers keep
their creditors at bay by making the minimum payment each month. Before 2005,
minimum payments were set so low (2% of the total debt) that many people were
paying practically none of the principal balance and just interest. Federal
regulators suggested higher minimums that would have consumers paying off their
balances in a reasonable amount of time, which they defined as between seven and
ten years. While the Fed allowed issuers to set their own minimums, many chose
to follow a "1% plus" policy. The payments would be 1% of the principal balance,
plus interest and fees. Today, the most common minimum payment is about 3%. Even
with higher minimum payments, it could take years for some consumers to pay off
their debt if they continue to pay only the minimum. With heavy balances carried
from month-to-month, the prospect of getting additional credit, such as a mortgage
or car loan, may become more difficult. Here's an example of how long it would
take to pay off your debt paying only the minimum payment: Let's
assume you have $10,000 in credit card debt. Your interest rate is 12% and you
have a minimum payment of 3% interest (which you'll continue to pay): $10,000
x 3% = $300 MINIMUM PAYMENT (TO START)
| Month | Minimum
Payment | Interest
Paid | Principal
Paid | Remaining
Balance |
|
*
In this example, if you paid just the minimum payment of $300 and continued to
pay the minimum (which reduces each month), it would take 210 months -
or almost 18 years - to payoff your debt. It would cost you almost $5000
in interest!
Always
Pay More! Whenever you make a payment
larger than the minimum, it helps pay down the principal faster. Not only will
you get out of debt quicker, but over time, you'll pay less money on interest
charges. By learning to live within your means and using credit sparingly, you'll
have the best chance to reduce your overall credit card debt in a timely manner.
This will result in a lower ratio of debt to available credit, which will open
up more financial opportunities in the future.
Other
Related Articles:More
Credit Articles >>> | 
