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How To Avoid The Trap Of Minimum Payments To Get Out Of Debt?

By: Jack Bronson

Drown in debt? Ah! This is situation of every individual who has a lavish lifestyle. This is not the only reason. There are many other reasons like unemployment, which has forced many individuals or families to live on the credit cards to meet their monthly expenses. Whatever might be the reason as in this article I am not going to look at the cause of the debt problems but I though to make you aware of the minimum payments trap that most consumer become a pray of it.

The two factors upon which the credit card industry has become a billion dollar industry are interest rate that it charges on debt and the minimum payments. Unlike, mortgage and other payments you do not have fixed monthly obligations on credit card debt. it depends on you how much you pay every month. But only thing is that credit card firms require you to meet minimum payout that is usually 2 to 4 percent of the balance outstanding.

Here is how, if you have $100 in credit card debt which bears an interest rate 20 percent that means, $20 where with minimum payments of 2 percent you only pay $2 per month and think that your debt is in control of you. In reality, the next month your debt is accumulated to $118 upon which your interest of 20 percent is charged. If you keep paying only minimum payments every month it will take almost 30 to 40 years to clear your credit card debt that mounted.

The fact here is person carrying credit card debt paying less amount every month means say minimum payments, the amount he owe isn't adding up but in fact it is being compounded at hyper speed. In other words, you are paying interest over the interest that accrued.

To beat the trap by credit card minimum payments, pay more amounts for the balance every month. The amount you repay must be fixed until you clear the debt in whole without decreasing the repayment amount each month until you clear the debt.

The other way behind getting out of debt is reduce your interest rate. If this is the case, then most of the amount you pay monthly will go towards decreasing balance on credit cards. Balance transfer is a way to reduce the interest rate over credit card balances. There are many such credit card firms out there who will offer 0 percent balance transfer interest rate, use these offers to stop your debt accumulating at higher pace.

The basic thing one need to understand with regard to credit card debt is the higher the interest is charged and the minimum you pay, the time of holding the debt is lengthier. As there are no such laws to regulate the interest rate charged on credit cards and how they conduct their business, this is where you are being trapped into minimum payments. Hence, you must avoid such payments styles unless you just want to be a hold the stress of the debt for rest of the life.

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