If you use credit cards you probably use them for a number of reasons such as convenience, to get you to the next paycheck when you've used all your cash,
or even to earn rewards like air miles or hotel points.
Whatever reasons you have for using the demon plastic (I
HATE credit cards by the way) I'd like to tell you about a clever little trick that the credit card companies use that might seem innocent at first, but
ultimately is designed to keep you perpetually in debt.
This little technique that seems pretty innocent at first, and some people even view it as a nice convenience that the credit card company provides as a
guide to how much you should pay each month.
So what is this "convenience"?
It’s a little thing called the “minimum payment”.
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If you’re one of the majority that uses credit cards and carry a balance from month to month, you might think that the minimum payment is your friend. You
think that as long as you can afford the minimum payment, you can afford to keep using the credit card and everything is all right.
Some people even make it a habit to manage their credit card debt according to the minimum payment. If the payment starts to get too high, they use the
credit card less and pay down the balance so the minimum payment will go back down to an “more affordable” level. That type of money management seems to make sense to a lot of
people in the “how much is the payment?” society we live in.
But the intelligent question you should be asking is “how much is this costing me?”
So let’s find out just how much minimum payments are really costing you.
First, let’s assume that your household is the average household in America. According to research from Credit Cards.com the
average credit card debt per household
with credit card debt is $15,956 (I’ll round that up to $16,000 for demonstration purposes). Let’s also assume you have the average APR (Annual Percentage
Rate) of 12.78% on your credit card debt.
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Now let’s break out the handy Credit Card Repayment Calculator from the
Federal Reserve.
If you make that easy, affordable, minimum payment on your credit card debt, your payment would be $320. When you finally get the credit cards paid off
(assuming you NEVER use your credit cards again during that time) you would have paid off the entire $16,000 in credit card debt plus $17,522 in interest
for a total of $33,522.
For all that stuff you paid for with those credit cards, you ended up paying more than DOUBLE the actual cost.
How long will it take you to pay it off using the minimum payment?
31 YEARS.
That’s 31 years to pay off those happy meals and latte’s.
31 years to pay off the cute shoes and gas for the car.
This, my friends, is STUPID!
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If you’re paying minimum payments on your credit card debt, or if you’re using credit cards at all, you gotta to wake up at some point and realize the
credit card companies are always going to find a way to keep you in perpetual debt. That is their
job and they do it well.
You have to get away from the “how much is the payment?” mindset and start asking “how much is this going to cost me?”. When you start realizing just how
much credit costs you and the lengths to which the credit card companies will go in order to keep you in perpetual debt, you’ll start running away from
them faster than Usain Bolt running the 100 meters.
Remember, using cash is always the best deal out there and being debt free is the best financial plan that will ensure that you
perpetually succeed with money.
If you’ve decided that it’s time to turn the corner financially, you may want to check out my Celebrating Financial Freedom self study course. It will show you how to take control of your cashflow
and put together a get out of debt plan that you can stick to so you’ll never have to deal with those “easy minimum payment” demons ever again.
Resources:
7 Huge Credit Card Lies We Tell Ourselves
The Miracle (or Curse) of Compound Interest
The 20 Best Ways to Use Your Credit Cards Wisely
Slavery
How Do You Get Out of Debt? (Part 1)- Get Mad and Naked
"Dr. Jason Cabler is a Christian personal finance blogger, author, and speaker. He teaches how to get out of debt and live a debt free lifestyle
through his Celebrating Financial Freedom
blog
and
self study course
. His new book "How to Budget- The Quick and Easy Guide to Making a Budget That Works" is now available (
more info here
). He can be reached for interviews or speaking engagements by
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