Everybody has an emergency come up from time to time and can only make the minimum repayments on their credit card. This is totally expected. The problem occurs when meeting the minimum requirements becomes a habit. Paying only the minimum means that your debt can last for years, which can be a very frustrating situation indeed.
Minimum repayments
At one time there was a bank that set their minimum repayments so low that interest was building on the balance faster than the minimum payments could manage to keep up. It was argued that this was unfair conduct and new regulations were put into place so that banks had to limit how low they set their minimum repayment levels.
Minimum repayments example
If you have a credit card with a $1000 balance on it, and the interest is set at 15%, here is what will happen if you make only the minimum repayments required.
If you only pay back $30 a month, which is the minimum amount on this card, for example, it will take eight years and seven months to pay back the loan. At the end of this time, you will also have paid $519 in interest charges. That is a lot of money that you would be feeding to the bank.
If you also consider that every year five months of payments are going towards interest only, it may make you rethink making only the minimum payments. You certainly need this money more than the bank does, and you can save a lot of interest charges by paying off the debt as fast as you can.
Making minimum repayments should be done infrequently and only during desperate times. It should be a last resort only, and at all other times you should try to pay off the balance in full, or at least close to it.
You can see that making minimum repayments is a complete waste of time. Now that you know better, start putting extra money towards your card payment every month and start saving money on interest.
