If you want to keep your credit card debt from burying you alive, the obvious solution is to pay for it every month. But if you think that paying for the minimum payment requirement is enough, then that is where you are wrong. If you really want to keep your credit card debt from haunting you for life, you need to learn how to pay more than the minimum amount.
Here’s the real deal: The standard payment requirement is only 4 percent of the previous month’s outstanding balance.
Let us assume you have $5,000 worth of credit card debt. Using the average interest rate of 14 percent and the 4 percent of the outstanding balance, your minimum payment will be $200. If you stick to the minimum payment, it will take 120 months or 10 years for you to finish paying off your debts. During that period, you will end up paying more than $1,975 worth of interest rates. Of course, that is with the assumption that you will not use your card again.
But if you choose to pay more than the minimum, let’s say make it $250/month, it will take you 23 months or less than 2 years to get your balance back to zero. The interest rate that you would have paid will only a little over $726. This improvement is brought about by a mere $50 increase on the minimum payment.
If you increase your payment to $300, you will be free from your credit card debt in 19 months and you only end up paying $592 in interest rates.
The thing about credit cards is there are a lot of additional payments being made on top of what you actually used for a purchase. You have the high interest rate that averages at 14 percent (as of January 2013). You also have the finance charges that are put on top of the balance and interest rate. These charges are credited if you miss paying within the grace period after you used your card. All of these, when added up, expedites the increase of your outstanding balance. And if you only pay for the minimum amount of 4 percent, it will take you a very long time to finish paying your balance.
So if you really want to get rid of your debt faster, you should try to cut back on your expenses so you can pay more than the minimum requirement. Not only will you be paying for less than half in interest rates, you will also be debt free in a relatively short time.
Of course, if your income cannot accommodate paying for more than the minimum, you may want to consider other debt relief options. There are many ways to help you get out of debt, you just have to find out what option is best for you.