One of the biggest contributors to long lasting debt is the hazardous minimum payment.
Minimum payments are what got me to where I am today ($8,500 in debt). When I realized my credit card debt was out of control earlier this year, I couldn’t afford to pay any more than the minimum required balance. At that point, my debt was far too high for my payments to even have much of an effect on my total balance owed.
I went from owing $5,009 on my AMEX to paying the minimum of $115 (remember that the minimum payments increase as your credit card balance rises), only to have my next bill read $5,035. Granted, for me it was a combination of both high interest and protection premium fees that contributed to this increase, but the idea remains the same whether you are paying for credit card protection or not.
A recent article on MarketWatch states that it takes less time to have a child and raise them to adulthood than it does to pay off $2,000 of credit card debt with minimum payments.
The article breaks it down:
A $2,000 credit balance with an 18% annual rate, with a minimum payment of 2% of the balance, or $10, whichever is greater, would take 370 months or just over 30 years to pay off. Plus, you would end up paying more than $4,500 in interest and other fees!
The article also talks about how making minimum payments on your credit card is a treadmill to nowhere. This was definitely true for me and it didn’t take long for me to realize that I needed to do something drastic to get off that treadmill.
The best thing to do, besides not maxing out your credit cards, is to pay as much as you can every month on the balances owed. I started off really well with my credit card when I first got them 2.5 years ago. I’d use them for some purchases and then use a large chunk of my paycheck to pay it off. However, I was living at my mom and dad’s at the time. I wasn’t paying much in terms of rent or utilities, so I had the extra $400-$500 per month to put on my credit cards.
Fast forward to 2015 where more than half of every other paycheck goes to paying my rent, parking, utilities and hydro, while the other paycheck covers my car payments, insurance payments, phone bill, groceries, etc. (see My Budget), and I barely even had enough money leftover to cover the minimum payments.
If you’d like to find out how long it will take you to pay off your credit cards, check out this link. I’m going to warn you though, you probably won’t be happy with the answer. It’s a great wakeup call and the perfect motivation to commit to paying of your credit cards once and a for all.
So what if you still can’t afford to make the minimum payments and you’re stuck on that dreaded treadmill?
First of all, try not to stress about it. I’m telling you right now that I was in the exact same spot less than one month ago. I’ll share some options shortly to help you determine the best course of action.
Things can and will get better, but you have to commit big time to seeing that light at the end of the long, dark, wet, smelly tunnel that is credit card debt. When you reach the light, you’ll likely still be wearing the same clothes you had on when you started your journey because spending money. There are doors that you can use to escape the tunnel, but once you open those doors, you’re locked out and the only way you can get back to that journey in the tunnel is to go all the way back to the beginning.
So put on that sweater you spent $70+ dollars and those jeans you bought because they were on sale and too good to pass up on. Stomp your way through that tunnel with determination and the will to succeed, wearing out the soles of your expensive shoes. Sure, you’ll be a bit of a mess when you reach the light at the end of the tunnel. Your hair might not radiate with the glossy shine of freshly applied color and you won’t have any residual tan leftover from vacationing in Cuba over spring break. That beautiful sweater will be soaked in sweat to the point that even your weird aunt who loves to do laundry so much she irons her socks won’t be able to revive it.
But when you reach that light, it’ll be so bright and feel so good that you won’t even care what you look like. The feeling of reaching financial freedom will overpower any feelings of physical insecurity you may have dealt with along the way.
And at least you’ll have worn the $70+ dollars right out of that sweater instead of letting it sit in your closet and forgetting it was even in there.