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Minimum Payments: A Monster That Will Eat You Alive

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.