Credit Card Debt

If you have ever researched the impact of making only the minimum payment on your credit card, you were probably shocked to learn how long it will take to pay off the balance.  If you haven’t read all the fine print on your credit card statement, let me spell it out in a basic example:

If you owe $1,000 on a credit card that charges 18% interest:

Your Minimum monthly payment =                            $25
Total Interest Charged =                                         15
Amount of your payment applied to Balance $10

Your outstanding balance is now $990.00.  

60% of the $25 payment you made went to interest.

By continuing to make only the minimum payment (which will change every month) it will take almost 13 years to pay off the initial balance and you will have paid over $1100.00 in interest.   Your purchase has cost twice the original price. 

And consider this for added shock value: many department store credit cards charge 28% interest which means, using the above example, it will take more than 55 years to pay off  the debt and you will have paid about 10x more than the original purchase!  That’s like paying $20 for a cup of coffee.  If I told you to set fire to your money you would think I was crazy but in effect that’s what you’re doing every time you make only the minimum payment.

Now that you’ve picked your jaw up off the floor here’s the bottom line:  Credit Card companies are not in business to be your friend.  They are in the business of making money and you’re basically giving them license to take your money if you’re making only the minimum payment.   Since credit cards are the most expensive form of borrowing, the best strategy is to take steps before credit card debt becomes a problem.

In my next blog, I’ll give some practical suggestions you can implement to avoid issues with credit card debt.

By:  Brenda D.  Owens, Trustee in Bankruptcy


Brenda works for James R. Yanch, Trustee in Bankruptcy
215 Simcoe St. N.
Oshawa, Ontario
L1G 4T1
905-721-7506
www.jamesryanch.com