How Bad Is It If You Only Make Minimum Payments on Your Credit Cards?

These days, you have to take good news where you can find it.  If you have paid all of your bills this month, you should celebrate, even if your celebration cannot be anything that costs money, because by the time you have paid all your bills, your bank account balance is in the single digits.  Play your favorite playlist on your music collection and take a walk around your apartment complex, or go to bed half an hour earlier than usual, even though it means spending 30 minutes less than normal on freelance work.  The good news is that the minimum payments on your credit cards are low enough that, after you pay them, there is room in your budget to pay all of your other bills.  The bad news is that you have been paying the minimum payments on your credit cards for years, and the balance does not seem to budge; in fact, it gets slightly higher from one year to the next.  It will cost a lot of time and money to pay off your credit card bills if you only make the minimum payments.  If you keep making minimum payments on your credit card and are feeling stuck, contact a Philadelphia debt relief lawyer.

How Credit Card Minimum Payments Work

When you borrow a loan with a fixed principal amount and a fixed term of repayment, the lender can easily calculate how much you must pay for each installment.  The monthly installment payment includes the principal amount divided by the number of months over which you must repay the loan.  It also includes the interest that has accrued on the outstanding principal balance, plus a fraction of any fees associated with the loan.

With a credit card, there are more moving parts.  The principal balance changes from one month to the next, depending on the value of that month’s purchases, plus any balance carried over from previous months.  Therefore, credit card companies charge a minimum payment that is usually about three percent of the principal balance on that billing cycle’s closing date.  The trouble is that, if you make only the minimum payment, it barely covers interest.  It will take you years to pay the balance down to zero, and this is assuming that you do not make any additional purchases.  When consumers pay only the minimum payment, this benefits the credit card companies more than it benefits the consumers.

Consumers know this, and those who pay only the minimum payments do so because it is all they can afford, since the rest of their paycheck goes to other bills.  It says something about the poor state of our economy that, in the third quarter of 2024, 11 percent of credit card holders paid only the minimum payment on their credit cards; this is a higher percentage than in any other quarter in recent memory.

Contact CONSUMERLAWPA.com About Your Credit Card Debt Relief Options

A Philadelphia consumer law attorney can help you get out of credit card debt even in a dismal economy.  Contact CONSUMERLAWPA.com to set up a free, confidential consultation.

Source:

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