Minimum Payments Create Debt
All credit cards have a minimum payment amount that you are required to pay each month. Regardless of the total of your purchases, you only will be required to pay a portion of your balance each month. Sounds great in theory, but it is a system that will turn out to be your worst nightmare. If you only pay the minimum, and you continue to charge, you will find that you reach your credit limit and create debt. You will have nothing left to spend and all the while your past purchases are racking up interest charges. Each month, your minimum payment amount will increase. You may also notice that the majority of your payment is just covering the interest, and not the principle balance. This is how so many people end up in an endless cycle of credit card debt.
Why minimums create debt
This is where the credit card companies have become wise. The originally credit card had minimum payments of around 10% of the total balance. Now, most cards have a minimum payment of around 2%. Card companies have seen a way of making as much profit from you and I as possible. By reducing the minimum payment to such a low level, they have given the customer a false picture on how much they can spend on their credit cards and how much they can really afford. Not everyone can, or wants to, pay their full balance each month. Consumers will see interest charges o top of interest charges, as their balance increases month by month.
To reduce your debt stop using your credit card
This is a position that many find themselves in. By noticing it early on, you could be saving yourself a lot of grief and a good bit of money. If you are there at this point, then the best thing that you can do is to stop using the credit card altogether. Start to look at ways to reduce your outstanding debt. Even if you find that you have to cut back on other expenditure, you should deal with a debt that is a drain to your finances. By saving now on a few luxuries, it will be to your advantage. As you pay off you balance quicker, you will save more in interest charges.
Always remember that by paying minimum payments, and minimum payments only, you are playing a very dangerous game with your hard earned cash. Why should you work many hours a week just to feed the profits of a bank or credit card issuer?
