Minimum payments on credit cards are calculated in a number of ways. Most consist of total finance charges for the month, plus around 1% of the balance. There are situations though where you are paying very little in principal, meaning you get almost nothing in return for your payment.
Consider an example where you owe $10,000 on a credit card carrying an 18% interest rate. Finance charges for the month would be about $150. Even by making a $200 minimum payment, only $50 is going towards the balance. The next month’s balance would be $9,950. You barely made a dent in it.
This is what makes paying off credit cards so difficult. It may seem like you are digging a hole in the sand, only to have the next wave come in and wash away all of your hard work. There are ways to gain ground in your attempts to become debt free.
First of all, understand that you may be able to negotiate a lower interest rate with your credit card company. You may call them or you can send a written request using a sample letter. A lower rate can allow you to pay more towards the principal each month (assuming you continue sending in the same higher payment).
If you are already having trouble making your minimum payments, then you likely need intervention before things get worse. A credit counseling agency may be able to lower your minimum payments by obtaining lower interest rates on your behalf. A debt management program is designed to help you successfully repay your debts at improved terms, leaving you debt free just three to five years later.
You have to be honest with yourself as you plan how long it will take to repay your debt. If you can make higher monthly payments and stick with it, then you may be able to pay off your balances in a somewhat reasonable period of time. If you are still using the cards or are struggling to keep up with your payments, then you should seek help before it is too late.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."