Using credit cards comes with plenty of traps, but none is as deep — or easy to fall into — as minimum payments. Card issuers make it seem so easy: even if you owe thousands of dollars, you could settle that monthly bill with a minimum payment that’s just a small percentage of your actual balance. Minimum payments can be as low as 1.5%, so you could pay less than $100 on a balance that’s in the four digits!
The good news is that the danger of making minimum payments is now spelled out for all card users right on their monthly statement. The CARD Act of 2009, in effect since February this year, requires card issuers to display on each statement how long it would take the account holder to pay off their balance paying only the minimum payment, along with information on how much they’d have to pay in order to pay off that debt within three years.
But for many consumers, that still isn’t enough information. Let’s say you owe $10,000. Your credit card company may tell you how long it would take you to pay off that balance if you made the minimum payment — but what if you paid a bit more that that? There are, of course, online calculators that can help you with that math. But it pays to put things into more of a visual perspective, as well.
Below is our visualization of the disastrous effects of making minimum payments.
Be warned! Only use credit cards when you know that you can pay the full balance when it is due. Credit cards should be a convenience–not a tool for spending money that you won’t have within the next month.
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18 Comments so far
leave a commentThe infographic says “only use credit cards when you can pay them off in full”. Then this begs consumers to ask the question: “Why not just use cash/debit card in the first place” … and avoid getting tied up with the monsters that are credit card companies
Credit cards do offer benefits, such as:
–convenience (quick, easy, accepted around the world)
–making online purchases (when debit cards aren’t accepted)
–earning rewards (cash back, air miles, etc.)
–tracking your spending (easier than tracking cash)
–concierge services
–some other extras (rental insurance, fraud monitoring, purchase protection, refund policies)
So, as long as you are careful, you can use the credit card companies without getting gobbled up.
The thing is that there’s debit cards with the VISA and Mastercard logos, so they will work anywhere VISA or Mastercard are accepted
Any online company that does not accept my debit card does not get my money… period. If I don’t have the money, I don’t buy it.
People who use credit cards responsibly:
1. Build credit history and can get loans at favorable interest rates.
2. Earn rewards points and get cash back.
3. Have a middleman to dispute charges with.
4. Can benefit from automatic protections such as price protection, warranty doubling, insurance (travelers insurance, cellphone insurance, etc.) and much more.
With that said, cash is fine but I wouldn’t keep more than $500 in an account whose debit card I have in my wallet. The fact of the matter is someone can drain your entire account with a 4 digit number and a piece of plastic.
I think credit cards are awesome. You have almost ZERO (in most cases) liability in case of a fraud so you can use your credit card number wherever the hell you want. I wont do that with my debit card. Plus the cashback, although minuscule, still adds up to something.
I think people put too much blame on the big companies and dont take any responsibility for their own actions.
The CC companies do use some really messed up tactics to take your money from you but I dont think they are to blame if you keep spending money that you dont have…
My 2 cents!
Indeed, if you have the discipline, it’s better to use the credit card for all your purchases. Problem is when people don’t have the discipline, and use the credit card to buy things when they don’t have the cash.
Honestly, people dumbness is amazing. Just think about what you are doing for god’s sake. It is completely clear to anyone that if you pay just a small part of any credit you expend, then you will eventually pay a lot more then what you should.
Stop consuming so much junk and buy ONLY what you REALLY need (with exceptions every few months of course, everyone needs to do good to their own ego), that is enough to save your pocket and ensure you a great life with your own paycheck. Everyone that do not agree with this do not reply please you are confusing me with someone that actually cares about your thoughts.
While paying off any credit every month is an ideal, the sole reason I even have a credit card is to build my credit rating and get a lower percentage point on a house purchase. “Experts” say that keeping credit between 10-30% is the fasted way to do this.
It is annoying to have to pay a few bucks in interest every month and keep a rolling debt, but that can equate to tens of thousands of dollars in savings on a large loan if it drops interest by a point or two.
I can’t think of a single advantage that credit cards offer over debit aside from building credit. The services listed above are not free, but incentives derived from the profit they make off you.
That’s completely inaccurate, but unfortunately a very common misconception. Carrying a balance does *not* improve your credit score. Just pay your cards on time.
No, no, no….
You don’t have to “carry” a balance. Just know when your banks report your current balance to the credit bureaus, and make sure you pay your balance in full AFTER that date each month. Banks generally only report once a month, so as long as you’re using your card regularly, you should always have a balance when it gets reported. Then, when you pay, don’t pay the current balance, pay the statement balance. You’ll never pay interest, and your credit will always appear to be carrying a balance.
Yes, being in the 10-30% range DOES improve your score, but you don’t have to pay interest to get that benefit if you pay attention and stay disciplined.
Also, if you can’t think of a single advantage of credit cards over debit cards, you haven’t done your homework. They’re listed quite a few times just in the comments on this page, and they are significant (fraud/price protection, insurance and warranties, rewards, more widely accepted, etc).
However, as long as there are people out there who AREN’T smart with their credit cards, there will continue to be enough profit for the banks to allow great rewards for those of us who actually know what we’re doing. So… keep spending!!
Use the credit card with the intent to pay it off each month. It’s not dependent on having cash in the bank at the moment of purchase, but by the time it is due to be paid to the CC company. Take advantage of the perks the CC companies offer, but plan to never pay them a cent in interest. Maintain a healthy credit limit for emergencies. “I can get 25% off a new big-screen TV, but I have to decide today” – IS NOT an emergency. “If we don’t put the large flower arrangements on all the tables at the reception, it’ll look awkward” – IS NOT an emergency. Emergency are serious shit, like flying to another country to bring your brother’s body back for burial. Or buying a ticket to be at Grandma’s side after the doctor announces she may not last through the weekend. Every purchase for personal use or luxury should have the price (including CC interest) calculated before you decide to put the plastic on the counter.
It’s true I had minimums…I want to spent 2.50 but end up having to purchase impulse buys because of the 10.00 minimum….can they give us a break please
Shockingly stupid. The math for the first condition looks very wrong. If I pay 10% of the balance each month (20% annual interest on the CC), I’ll pay it off in 11 months with about $1,030 in interest.
I have no idea how they do math to figure out it will take 5 years to pay it off. That’s $60,000 in payments, and is ludicrous even to those who can’t do simple math.
I ignored the rest of the comic, except to look at the funny pictures. Not something I’d want to advertise Mint.com, if I were them…..
WAIT! I’ve been too harsh – I bet they mean to pay 10% of the remaining balance until it’s paid off.
Still, mathematically you’ll never pay it off. Unless that last payment is a minimum $20 or some such. I was thinking too much math, not as much “credit card physics”.
My apologies if that’s what was intended.
You are correct that it would never be paid off if the payment was always 10%, but once the payments get very small, the alternate minimum, usually something between $15 and $35 dollars kicks in, to prevent you from paying tiny amounts. So in this example at 10%, your first payment is $1,000, and then it decreases from there until you hit the ~$15 minimum allowed.
feel like comparing this with student loans?
Either your math is wrong or your language is unclear here. Carl B is right–if you pay 10% of the balance each month, you’ll pay it off in less than a year with just over $1,030 in interest.
If you pay 10% of the remaining balance every month, you’ll actually never pay it off, mathematically speaking. And honestly, is that how people pay their credit cards anyway? Do they calculate a percentage of the balance and pay that, coming up with a different number each month? Or, more likely, do they pay either the minimum balance or a set amount, like 10% of the original balance, until it’s paid off.
OP, can you clarify what you meant here?