The Credit Card Minimum Payment Trap
One of the most common traps that people of all ages get into is the Credit Card Balance Trap. The minimum payment is usually 1 to 3% of your balance plus interest and any outstanding fees. They will also have a minimum payment such as $45 or $35 when your balance gets that low.
Lets say you have a $6,000 Balance on a Credit Card and just make the minimum payment
Credit Card Terms for this example:
$6,000 Balance
18% interest
1% Minimum payment,
$30 minimum payment.
Your initial minimum payment is $150, this will drop as you pay down the balance. The first month you will pay $60 in principle and $90 in interest. The second month $59.40 principle and $89.10 in interest.
It will take 291 months (over 24 years) and you will pay $8,423 in interest plus the $6000. If you miss a payment your interest rate will go up and your credit score will go down.
If you charge anything else on this card that you plan on paying this month it will also be charged interest from the transaction date to the day they receive payment. Any extra purchases will not get Float or Grace Period.