Many Tennessee folks consider themselves lucky if they are able to pay the minimum monthly payment on their credit cards. However, what many consumers don't know is that the minimum payment is simply a trap. Those who pay only the minimum amount tend to dig themselves further and further into a hole of credit card debt every month.
Who can afford to pay the entire balance every month? Millions of Americans do, yet there are millions more who struggle to make ends meet. Many people believe that if they come up short one month, they'll pay off the balance for sure the next month. However, other debt obligations come up and the credit balance gets bigger and bigger.
That mountain of debt significantly affects one's credit score. Of a person's overall score, 30 percent of it is based on the debt to credit ratio. Ideally, a person should be using less than 30 percent of available credit, so once a person's debt climbs beyond that, their score is bound to suffer.
Debt also continues to accumulate because of the interest rate. Most credit card companies require only a 2 percent payment every month. If a person pays only the minimum payment on a card with a $1,000 balance at 10 percent interest, it will take him or her more than 10 years to repay it. If the card has a 20 percent, it will take more than 26 years to pay it off. At 22 percent, it takes a whopping 46 years to repay that debt. When interest is added in, that $1,000 debt will have cost tens of thousands of dollars.
Of course, the best bet is to use a credit card sparingly and buy only what a person can afford. By creating a budget and making an effort to pay off a significant portion of the balance every month, a person can keep debt at bay.
Source: Nerd Wallet, "What Happens If I Only Make The Minimum Payment On My Credit Card?," Anisha, Oct. 4, 2013