Credit card debt can be a significant drain on your budget. Even if you’ve gotten smart and put the cards away (or cut them up!), you still need to find a way to rid yourselves of those pesky balances.
One trap that many debt-ridden consumers get into is just paying the minimum payments. Here’s why that is such a bad idea. Just who do you think determines what that magical minimum payment amount is going to be? Obviously, it’s the credit card companies themselves. Hmmm, those wonderful benevolent companies that are dedicated to helping you find your way out of the prison of debt…. Oh wait a minute, that really isn’t their goal, is it?
These companies are in this business for ONE and only one reason – to make a profit and to attempt to get as much money moved from your pocket to their pocket as they possibly can.
They calculate those minimum payments very carefully – just enough to pay their interest and expenses, while making absolutely sure that you will remain in debt to them for as long as humanly possible (well, Corporately possible!).
So, I have a little strategy that helps me get out of debt, twice as fast. I do pay the minimum payments – only I pay them TWICE each month.
Like most people, I get paid twice a month, so I go ahead and pay the minimum payment out of the first paycheck. Then I pay it again, out of the second paycheck.
The benefit to this strategy is three-fold.
- I am doubling my payment, so the debt gets paid 50% faster
- More of my payment goes towards principle and not interest
- I will never have a late payment fee
“I DO pay that minimum payment – only I pay it TWICE.”
That’s the other trap they have waiting for you – if you are even one day late on a payment, they can not only slap you with a hefty (usually $25-$35) late fee, but they can also legally jack up your interest rate to an astronomical rate.
In fact, it’s so bad that the government (another benevolent Corporate institution) has stepped in to require credit card companies to be more forthright about disclosing the fact that these payments are NOT set up in your favor. That should be a red-letter warning sign to every person in America with a credit card. Thanks to the government, there is a new line on all credit card bills that tells you how long it will take you to pay off your balance – if you pay only the minimum payment and usually it is a very long time!
For example, if the minimum payment on one of my cards is $40. I pay $40 on my first payday, and then I pay another $40 on my second payday. Some months, I even have a third payday, so I’ll pay that $40 again, just like clockwork. Pretty soon, that minimum payment fades to $30, then $20, and down it goes until it finally vanishes.
I know a lot of people are doing the debt snowball thing to try to accelerate their debt payments. Not a problem. This works well with a debt snowball concept – a debt snowball is where you target certain bills with larger payments so you can get them paid off faster and then apply the large payment to the next bill in line, and so on. This minimum payment strategy means that you just have a more modest snowball to start off with because you calculate the double minimum payment on the non-snowball cards instead of just the single minimum payment.
Then, in a surprisingly short time, you may just find yourself free from credit card debt entirely! Wouldn’t that be a wonderful accomplishment, especially knowing how much it would frustrate our beloved credit card companies!
If you are in a position where your minimum payments are absolutely ALL you can manage, then it’s time for a last-ditch effort to get yourself back on a solid footing again. First of all, your credit cards definitely need to go into a time-out period – all of them. Unless you need your credit cards to provide basic food and shelter-type needs, into the drawer they go or even cut them up.
Then start looking for ways you can cut back on your spending, or increase your income (part-time job, Ebay seller, Fiverr, pet setting, babysitting, anything will do) to be able to pay even a little bit extra on your minimum payments until you can get them down to something more manageable. Don’t let those nasty credit card people have control over your finances.