The 'minimum payment' is probably the most misunderstood aspect of credit card debt today. Many of us
stick to the minimum payment option on a monthly basis in the mis-belief that we are actually reducing
our debt, unfortunately this is not the case at all.
We need to keep in mind that credit card companies are in fact businesses, with the ultimate aim of
making money and increasing profits. To this end it is in the best interests of the credit card company
to keep a balance on your account and keep you in debt! One of the most effective ways of accomplishing
this is through the 'minimum payment' option you will see on your monthly statement. Let's face it, most
of us don't have the money to clear our outstanding balance in full each and every month, so when the
card provider gives you the option of a low payment, some of us will jump at the chance!
However, although this seems great at the time, it's exactly what your credit card provider wants you
to do! Why is that? Well for a start, the figure they give you as your minimum payment is made up
primarily of interest charges. For example on a balance of $2000, a minimum payment of $40 could be made
up of up to $38.22 interest, meaning your actual balance would be reducing by only $1.78 per month!
The much better option is to decide on a monthly figure you can comfortably afford to pay, then
continue to make this set payment each month, regardless of your minimum payment. Obviously this amount
needs to be higher than the minimum payment requested, but by sticking to a set amount you will not only
reduce your balance quicker but also minimise the effect of compound interest throughout the year. You
will be amazed at what you'll save. Try it for yourself and see! You can see the best types of credit cards available here.
