For many, credit cards have become an indispensable part of life; a necessary, vital part of the big financial picture. For some of those people, credit cards have become the bearer of a burden of debt, one that may need desperate intervention to overcome. This scenario can especially come true if the danger of minimum payments is never realized.
The danger of minimum payments is easy to understand mathematically, yet in a month-by-month situation, where you are reading your credit card statement and see the alluring line about the least you need to pay, and you are already striving to live paycheck-by-paycheck and can use a break, and you are so busy that you just need to get bill-paying over with and move on with the rest of the day, it can be an understandable temptation. However, ultimately, it is still a poor decision.
Feel free to pull out your own calculators for this one, but for the sake of a very simplistic example, let us say that your credit card bill is $1,000 with the minimum payment at $100 and your monthly interest rate at 10%. If you pay the $100, then even if you do not spend a dime the next month, your bill comes to $990. It is already only $10 short of what it was the previous month, and if you had spent any money, then you have begun digging yourself into a fiscally irresponsible hole. The danger of minimum payments is that the brutally simple math behind them vividly portrays a growing amount of debt that depicts a financially irrational way to go about paying creditors back.
To those who have not yet done the math or bothered to try and see the more reasonable picture, the danger of minimum payments is replaced by the seeming awesomeness of minimum payments. After all, paying a lot less sounds a lot better, and the credit card company may even seem crazy for offering such a nice option. But this, of course, is folly, and credit card companies love it when card-holders pay the minimum payments, because months into it, they are already paying more than they would have had they originally just paid in full, and the credit card company makes significantly more money. They make the minimum payment option seem like a wonderful, life-saving thing, putting an attractive disguise on a disgusting choice.
Consider: Banks worldwide have, even promote, money-market savings account that may provide something like 4% APR or close, with your thousands of dollars seeing a few bucks a month in interest gains. Yet this is seen as a great thing, a fantastic prospect; the ability to gain on your money without doing a thing. We can see that as a good, solid positive, yet the danger of minimum payments on credit card bills is still not properly recognized as the repulsive, horrid thing it really is. Credit card companies continue to dole out credit card bills that have ridiculously high interest rates, preying on their customers that utilize the minimum payment option only to sink into a hole if crippling debt that affects their spending, their financial well-being, their savings, their way of life, and can truly affect them in deplorable ways. The danger of minimum payments on a credit card bill is the danger of just how horrifying debt can be, especially credit card debt; yet, until people realize this fully and act on it, those credit card companies will sadly continue their money-sucking practices.
The danger of minimum payments may simply be credit card debt, but the path there can be paved with good intentions, or at least misled consumers. If you can, avoid using the minimum payment at all costs, and show the credit card companies that you are a responsible, rational consumer.