Minimum Payments Are For Suckers!
Having a credit card is great—but if you pay only minimum payments, you're never likely to get it paid off
Let me put this bluntly: if you're paying the minimum payments on your credit card balances, you're shooting yourself in the foot.
The credit card companies like to pretend that they've started putting those little "Minimum Payment Warnings" on your billing statements because they care about you--but I can assure you, that's hardly the case. They're doing it because they're now required to do so by law.
In a way, they're paying a price for their own greed. Back in the late 2000s, they helped pushed through legislation making it difficult to file bankruptcy, in large part because they were sick of people not paying their credit card bills.
Of course, in so doing, they were attempting to duck responsibility for their own malfeasance.
We've all heard of little kids getting credit card offers in the mail. Well, I know people whose pets have received those offers, including, in one case, a goat. I'm not making this up. Obviously, the credit cards companies have been a little stupid in making their offers, and didn't care to pay for their stupidity.
No worries: they didn't get away scot-free. For once, our politicians noticed how outraged everyone was, and tried to fix all the sneaky little things credit card companies do to get you to pay the most interest and highest fees possible.
In 2007, Congress tried to pass the Credit Card Minimum Payment Warning Act.
It never became law, but in May 2009, President Obama signed something better: the Credit CARD Act of 2009. It went into effect in late February 2010.
Suddenly, these little boxes started appearing on credit card billing statements, clearly telling you how long it would take to pay off your bill if you paid that handy minimum each month.
Let's pull an example out of the air. Suppose you have a MasterCard on which you pay a painful 18% interest, and you have a balance of $1,302. Your minimum payment is just $34. Not bad!
But read the small print in the Minimum Payment Warning: if you pay every payment on time and never charge anything ever again, it will take you 12 years to pay off your credit card, and you'll end up paying $2,660 for that $1,300 worth of credit. Ouch!
However, if you pay $47 per month--just $13 more than the minimum payment--you'll have it paid off in three years at a savings of $965. The bottom line is, the more you pay, the better off you are.
Can you see why the credit card companies are unhappy with this new legislation? And can you see why paying minimum payments on credit card balances is for suckers?
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