With so many wonderful things to spend money on, it's tempting to pay just the minimum payment due on your credit card statement each month. But think again—those small payments are costing you big money in interest charges.
When your monthly bill arrives, it's not immediately apparent that big money is involved. With a minimum payment of around $50, it seems impossible that paying such a small amount on such a relatively low balance could have much effect on your finances. But let's take a look at exactly how much paying just the minimum payment is costing you in the long run:
Let's say you have a $2,500 balance on a credit card with a 15% interest rate. Let's also assume that you pay your minimum monthly payment of $50 on time and that you have incurred no extra fees. Using an online credit card calculator we learn:
To give you an idea, if you paid double the minimum amount each month ($100), it would take you 31 months to pay off your credit card and you would pay $516 in interest.
A quick internet search will bring up many credit card calculators. An excellent calculator with lots of plug-ins can be found at Board of Governors of the Federal Reserve System. You can enter how soon you would like to pay off your balance, and it will tell you how much you need to pay each month. You can also choose a specific payment amount and get information about the new length of term and interest paid.
Now that you know just how much those minimum payments are costing you, it's time to find some extra money in your budget for debt reduction. It's exciting to find ways to fund great goals like debt reduction. You may even find enough to start saving for a rainy day.
Audit your budget by listing all of your debts and obligations on a sheet of paper. Don't forget things like prescriptions, car registration, or other line items that may not immediately come to mind. On another sheet of paper list all of your income, even the irregular deposits like refunds and rebates.
Take a good long look at what you are spending money on. Chances are good that you can spend less on these notorious money wasters:
With all this new-found information about your spending habits, build a budget that makes debt reduction job-one. You will be debt free and banking the money you would have been paying in interest in no time.
As you pay down your debt, take some time to think about future spending. Consider some of these great ways to strengthen your family budget:
Plan to reduce your credit card debt and stop allowing long-term interest payments to rob you of your hard-earned cash.