Credit Repair:
Beware Paying the Credit Card Minimum Payment

Author: Johann Erickson
Need a new iPod? The computer store running a special this week? Want that new outfit? Got to have that CD? Before you reach for your credit card and make that impulse buy, think for a moment. The payments won’t be much? Think again. Paying only the minimum payments on your credit cards can cost you.

“But,” you say, “my balance is low, and with this purchase, it will only be $1,000. I can pay that off in no time!”

Well, if you enter the Twilight Zone and never again use the card for any purchases, are never late, and go over your credit limit, you can pay off the card by making minimum payments. It’ll only take a little under five years! Just fifty-eight short months of your life, costing you $154.48 in interest charges, that is, if your card rate is only six percent.

But what about higher rates? Generally, the higher the interest rate, the more you pay and the longer it takes to pay off the card.

Everybody knows that, you argue. Everybody uses credit. Well, true, nearly everybody uses credit, because it seems like we’re not really spending our money, but someone else’s. Plastic is deceptive.

Most folks do make impulse buys, rationalizing that they can pay off their card balance in a short time. But life happens to the best repayment plans. Think you’ll never get sick, fired, laid off or downsized? Do you drive a forever car that will never need major repairs? Think again. And when these things happen, the minimum payment beckons like a shining solution.

But is it?

Hardly. Let’s say that you had several cards, all having a $1,000 balance at different interest rates. Note the long repayment times, assuming, unrealistically, that you never make another purchase with any of these again. Check the chart for repayment times and interest rates.

Rate	Months	Years	Interest
9%	63	5.8	$258.46
12%	69	5.75	$389.16
15%	79	6.58	$579.48
18%	99	8.25	$987.05
24%	426	35.50	$7,521.85

By the time you zero out a card with 18% interest, the going rate today, you’ve added more than 50% of the total you spent on the purchase in interest charges during the eight plus years it took to repay.

So what, you got a low rate? Perhaps you were offered a low rate of six or nine percent during a card issuer’s promotional period. Naturally you used the card to charge items until you reached your set credit limit. After a specified period, maybe six months, that promotional rate will end and your interest rate will increase to 12% or more.

And heaven help you if you incur any late charges. This year almost all credit card companies have raised their late fees to $35 from $29 in 2004. But that’s not all they will do. If you’re late on any card that you use, expect to see that rate increase dramatically. Up to 24% or higher depending upon the area in which you live. Unbelievable? It can happen faster than you can blink.

Unsecured cards are bad enough. Secured cards targeting those with credit problems are worse, usually starting at 24%! Add late, overlimit and credit line increase fees, and you can see what a masterful trap credit can be. All of the fees add up quickly and interest is charged on everything.

So before you reach for your card and make that impulse buy, think again. Pay cash. Cash makes you live within your means. Buy when stuff is on sale. Avoid the minimums. If you use credit, pay amounts above the minimum to shorten your repayment time and lower your costs. For more credit repair tips, please visit us at Helpful Home Ideas.

About the Author

Johann Erickson is the owner of Online Discount Mart and TV Products 4 Less. He is also a contributing writer for sites such as Helpful Home Ideas. Please include an active link to our site if you'd like to reprint this article.

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The above article by Johann has some excellent guidance on paying off your credit card balances. I hope you got something out of reading it.

Don't get caught in the credit card trap. If you use credit cards like I do, be sure to pay off your balance every month. Do not let any amount carry over.

While credit cards can be very convenient while on a trip, consolidating a group of bills and purchases in to a single payment, etc., credit cards can also become a financially deadly credit card trap from which banckruptcy is often the only solution.

Don't let this happen to you. If you will not be able to pay for your purchase at the end of the month when you credit card bill comes due, do not make that credit card purchase. Pass on, until you have the money available to pay your credit card bill in full at the end of the month.