Minimum payments are practically the biggest trick that credit card companies have come up with. They make you think that you are cruising just fine with your credit card debt by just sticking to this amount. That is a big fat lie. While you may be saving yourself from late penalty fees, you are not making any significant progress in your debt. Chances are, you are setting yourself up to pay your credit card debts for the rest of your life. Your creditor prefers this scenario because the longer it takes you to pay off your balance, the more interest you will give them. That means more profits for the company.
The Credit Card Act of 2009 actually mandated card companies to inform consumers about the repercussions of sticking to minimum payments. If you look at the statement on your credit card bill, you will notice that there is a box containing relevant information about your minimum payment. The text box includes figures that indicate how long it will take you to finish paying off what you owe and the amount you will waste on interest if you stick to your minimum. Most consumers find this useful and have in fact, taken it upon themselves to pay more than that amount every month.
But here’s the problem, what if your budget can only afford to pay the minimum? How can you solve this dilemma?
This is where debt consolidation comes in to help. This type of debt solution provides consumers with a structured payment system that allows them to make lower monthly contributions towards their debts. You may be wondering how that is different from minimum payments.
When you opt for debt management, which is one program of consolidating debt, you will hire a counselor who will aid in creating a debt management plan. This low payment plan stretches your balance over a long term. This is presented to your creditors and once they give their blessing, you can make payments based on this plan through the counselor. Your account will be frozen – meaning you will not be allowed to use it until you have finished or decided to quit the program prematurely. But until then, your minimum payments will not have the same effect as long as you stay under the debt management program.
If you opt for debt consolidation loan, you will apply for a loan amount that can pay off the other debts that you have. This will eliminate your credit card debt altogether and just shift all of what you owe into the new loan. So no minimum payments here either. Unless of course you decide to re-use your card again – which is highly discouraged.
Of course, you always have the option to earn more money so you can pay more than the minimum. The thing is, you don’t really have to put in a lot of additional into it. Even an extra hundred dollars will make the difference. So think about it by consulting your finances. You will always go back to your budget and your payment capabilities to see how much you can really afford to pay towards your debts. You have a lot of options before you – just make sure that you will never include sticking to minimum payments as one of them. That really never works out for anyone.