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Minimum Payments and How They Keep You in Debt

By: Michael Millington

Having debt get out of hand can be a scary experience. To prevent this from happening, creditors will allow for a minimum payment to avoid other penalties like late fees. However, many people believe that by paying their late fees every month they will make great progress on their debt. While making a minimum payment on an account is better than making no payment at, many have no idea how minimum payments effect their finances. Here are a few things to consider when looking to make a payment on a credit account.


How Much Debt Do You Have?

If you attempt to pay off a debt by making minimum payments only, an important factor to keep in mind is how much total debt you have on that account. In some instances, a minimum payment may or may not fluctuate based on how much you owe. If the minimum payment does not change, it can provide a false sense of security to continue to commit the least amount of money to your debt. Without making a large enough contribution, your debt can exist for a long time.

Having a small amount of debt would make a minimum payment ideal for a monthly contribution. One of the larger factors of your FICO score is your payment history and how often you keep up with your monthly payments. Building your payment history can ultimately work in your favor if you are looking to increase (or maintain) your credit score. Also, keeping a smaller balance can help your FICO score as well, as the amount of debt you have also contributes to your FICO score.

If you hold a large amount of debt (like a maxed out credit card in the thousands) then a minimum payment might be too small to make a substantial difference in the amount. If your debt exceeds 30% of your total amount of credit then it may have a negative effect on your credit report. In the long run, your FICO score may end up suffering while you make only minimal progress in trying to whittle down your debt.


Interest Rates and Other Fees

If you constantly take a credit balance through the months, you’ll have to contend with interest rates being added to your debt. Interest will be added to your principle amount of debt every time you carry a balance with you. Since the interest rate is a percentage of your balance, the higher your balance, the higher your interest payment. Having a large amount of debt carry over might result in an interest payment that is as much as (if not larger than) a minimum payment amount.

In the event that your interest payment negates your minimum payment in this manner, you would end up not making any real progress in paying your debt down. Your minimum payments would be wiped out by the month interest rate. The main issue with this cycle is the lack of progress in bringing down the principle amount of debt. This will make sure you continue to maintain the same level of debt even though you’re making payments on time every month.

The best way to remedy this situation is to break down your total debt into the amount of months you’d like to have the balance paid off. Aside from interest, this will show you exactly how much you should be paying each month to completely eliminate your debt. In order to make sure you stay on track, add the interest amount to each payment whenever you’re scheduled to pay. A few tweaks to your monthly budget might see you handle your debt faster than you could have realized.


Do the Math

Calculating how long it would take you to finish paying off your debt through minimum payments can be a great way to estimate how long it would take you to completely payoff your debt. Factoring in interest for higher balance debts (like the aforementioned credit cards), it is possible to end up spending years to pay off just one credit balance. Even if you cease all purchases with that credit card, it wouldn’t make much of a change.

Without having the ability to alter your budget and pay more than your minimum amount, you might end up paying much more than what you originally owed. If you have a substantial amount of debt and you don’t have a foreseeable way to eliminate it, you might be in need of some professional debt relief. While having a debt balance isn’t always a bad thing, having too much debt can negatively affect not only you finances but your FICO score and your credit report.


Reaching out to a debt relief company can help relieve your stress as well as your debt. Guardian Debt Relief has been granting people that relief for years, and we are prepared to do the same for you. Our debt relief specialists can answer any of your debt-related inquiries and show you how to get started down the road to debt freedom. Through the power of debt settlement, we might even have you avoid paying the entirety of your debt. Our consultation is free, so don’t hesitate to give our experts a call. If you’re dealing with an overwhelming amount of unsecured debt and you’re not sure how to handle it, don’t wait to seek debt freedom. Take the first step and contact Guardian Debt Relief today.

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