If you had a $100 windfall, what would you do with it?
Avoid Minimum Credit Card Repayments
If you owe money on your credit card, you have to pay money towards the balance each month. The minimum monthly amount that must be repaid varies from card to card. But the going rate is usually 3% of the outstanding balance subject to a minimum repayment of say $10. This is intended to repay the interest that has accrued over the last month and make a small dent in the amount borrowed.
Now let me ask you a question, but bear in mind that the monthly interest added to most credit cards is usually somewhere between 1.5% and 2%. Okay, here’s the question; How long do you think it would take to repay a balance of say $1000, if the monthly interest was 1.5% (19% APR) and you paid the minimum each month?
Go on, have a guess! One year? Two years?
Wrong!
It would take 13 years and 6 months. Shocking! Truly shocking! No wonder so many people are drowning in a sea of debt.
But if you think that figure is frightening then the next number that I am going to give you’ll literally knock your socks off! If you make the minimum credit card repayments every month, the total cost of paying off that $1000 balance would be an astronomical $1844.47.
That’s almost twice the original debt. And if you owed $5000 instead of $1000 it would take the same time to repay but would cost you five times the amount. It other words, $5000 of credit card debt repaid at the minimum monthly amount would cost you $9222.35 and take thirteen and a half years. Frightening!
So my advice is simple. If you owe any money on your credit card, never repay the monthly minimum. Never! If you do you will be clobbered with the high interest charges. Do what ever you can to avoid falling into this trap. Increase your income, reduce your spending in other areas, consolidate the debt at a lower rate, but DON’T pay the minimum.
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