Money is tight and you’re only paying the minimum on your credit cards. It happens to the best of us. But if you continue to pay the smallest amount, it will take you a lot longer to pay off that debt with the interest piling up. To really hit it home, here’s an example that shows, by paying just a little more each month, you could actually be saving thousands in the long-run.
Here's the Case
Let’s say that you have a credit card balance of $2000. You’re paying an annual interest of 18%. The minimum monthly payment for most cards is 1% of your current balance plus interest and fees. That will be $50 per month.
Paying the Minimum
If we do the math, with $50 monthly payments, it takes 182 months to fully pay that balance. Because interest on the balance you carry is added onto a new balance each month, the total amount you’re paying is far bigger than the initial $2000. The interest charge during 182 months snowballs into $2423.22. By the time you’re done, you’ve paid $4,423.22 in total.
Paying $10 Over Minimum
What if you muster up $10 more per month to pay your bills? $60 monthly payments mean it takes just 47 months to pay off that debt. The interest you’ll be paying over this shortened period is $793.44, less than a third of what you would have paid if you paid the minimum.
In short, cutting back on three cups of coffee per month would save you $1629.78.
Of course, a lot of outside factors get involved in paying bills in real life. But just by knowing that a few more dollars can save you a huge amount of money in the long-run, you could be more prudent about your spending habits.
So cut back on those extra cups of coffee, cook a meal at home a little more often, and put in those payments. Small adjustments to your daily life can become substantial financial investments for the future.