Credit Card Bills
Credit Card Bills

Most people in America have at least one credit card tucked away in their wallets. Making purchases “on plastic” has its advantages, of course—like helping consumers build their credit scores and pay for big-ticket items in a manageable way. But credit card debt can become a dangerous cycle if left unchecked, one that leaves cardholders struggling to keep their balances under control over time.

As you’ve looked over your monthly credit card statements, you’ve probably noticed the option to pay the minimum balance. This could be a percentage of your total balance, typically between two and five percent. Or, it could be a percentage of your balance plus a fixed monthly finance charge. The specific minimum balance you’re required to pay depends on your credit card agreement, which will have a section explaining how this payment is calculated.

Theoretically, you could make only minimum payments on your credit card bills indefinitely. It may be tempting when money is tight. But what happens if you do so? Keep reading to learn more.

Minimum Payments: The Advantages

Many Americans carry a sizeable balance from month to month on their credit cards, one that’d be difficult, if not impossible, to pay off in one fell swoop based on their incomes vs. expenditures. Minimum balances give them the opportunity to pay just a percentage rather than the whole shebang, staving off late fees and collection notices.

Simply put, it’s much easier to pay $25 than it is to pay $1,000. In this sense, minimum payments allow cardholders to buy time when their budgets are already stretched thin.

Minimum Payments: The Drawbacks

The major downside to minimum payments is that they do not stop interest from accumulating on a balance. Sure, you’re staving off late fees. But you’ll actually owe more over time as interest fees rack up. This means your debt will take significantly longer to pay off.

One chief financial analyst calls minimum payments “a treadmill to nowhere,” as MarketWatch reports. Consider this: It’d take you more than 30 years to pay off a $2,000 credit card balance with an 18 percent APR, assuming you made only minimum payments of 2 percent or $10. All in all, you’d end up paying nearly $5,000 in interest and charges alone—significantly more than the original principal balance of $2,000.

So, the serious downside to minimum payments is that they prolong debt repayment and can cost you a pretty penny in interest over time. This just goes to show it’s less of a long-term solution and more of a way to stall your debt temporarily.

Strategies for Getting Rid of Debt

Paying the minimum balance can provide temporary relief, but it won’t make any dent in your debt. Getting rid of credit card debt requires a strategy that addresses it at its source.

As Freedom Debt Relief reviews reveal, debt settlement is one option available to people struggling to make even minimum monthly payments on major debt. Instead of attempting to make minimum payments while interest accumulates in the background, enrollees in debt settlement programs deposit a set amount of money each month into a special account. Then, when they’ve saved enough, negotiators reach out to creditors with this information—aiming to strike a settlement less than the original amount owed. If creditors agree to the lesser settlement, this effectively ends the cycle of paying the minimum or less while interest mounts.

Another option to explore is conducting a balance transfer from a high-interest card to one with zero or low APR. This way, even if you’re making minimum payments or slightly more, you’re doing so without amassing so much interest so fast. You’ll pay a fee of 3 to 5 percent, but it can help you get a handle on your balance.

What happens if you only make minimum payments on credit card bills? Well, you’ll avoid late fees but accumulate interest. It’s important to explore strategies for truly eliminating debt rather than using minimum payments to push off your balance for another day.