The minimum balance is the smallest payment you can make on credit card debt without being penalized. It is a percentage of your total balance. The minimum payment becomes lower and lower as you pay off your debt, but most lenders’ packages entail compounding interest, meaning interest upon interest. This means you will be paying off the minimum on your debt for a very long time if that is what you keep doing.
It is easy to be lured into buying something you can’t afford when they tell you that you can pay it back in small installments. Say you want to buy something that costs 3,000 dollars and they tell you that you can pay just $50 a month until it’s paid off. $50 a month is not a lot, but the interest is huge. The interest could end up being as much as $450 a year.
There are ways to calculate exactly how much paying the minimum is costing you. First, divide your annual interest rate by 365 (days) and multiply the number you get by 30 (days). Multiply the result by the total debt (3000 in this case), and what you get is the amount you are paying in interest per month. If you are paying just $50 a month, the majority of that is going toward interest and only a small part toward the total balance. It could take almost two decades to pay off the 3000 you spent on a 3D television or whatever it is you decided to buy. The interest you will have paid is more than the actual cost of the television. And 3D televisions could be obsolete in two decades! Your TV make certainly will be by then!
If you are struggling with credit card debt – maybe you have piled up debt on several cards – and if you do not want to pay high interest, you will have to create a budget that allows you to invest as much money as you can into debt instead of just covering the minimum on every card. If you are having trouble getting a debt management plan, you should talk to a non-profit organization that helps people manage their debt without charging for their services.
Another option is transferring your balance. Get a card with a zero interest offer for this service and move your balance with the highest interest on it. If you are not paying interest this means that everything you are paying is going toward the debt, which is a great thing because it helps you pay your debt off faster.
With time, your minimum payments will decrease, as will your total balance. However, this means your repayment term will drag on and on. You will be paying your debt off for longer than if you were to pay it off in fixed amounts. So, be wise and calculate exactly how much you will end up paying. There are many minimum repayment credit card calculators available online, and all the information you need to calculate your total costs should be on your credit card statement.
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