Have you ever wonder how much of your credit card's monthly payment go to the principal of your credit card debt? Many people do not really care about it and continue enjoying the benefit of payment just the minimum amount due in their credit card statement. That's why so many people are in credit card debt and find themselves difficult to get rid of it. If you are in this situation, this article will tell why this happen and every extra dollar you put into your monthly payment speed up your credit card debt payment.
How Long Will You Pay Off Your Debt With Minimum Payment?
Most credit card companies set a minimum monthly payment requirement as 2% of the credit card balance in your credit card statement or $ 10 which ever is higher. You may think that the credit card companies are so kind and reduce your debt burden by enabling you to pay just a fraction of your debt each month. Do you how long will you take to pay off your credit card debt and how much interest will the credit card company earn if you utilize the feature?
Let us make a clear picture by using an example. A person named John owes $ 10,000 credit card debt with 18% annual interest. He just pays the minimum amount due, which is 2% or $ 10 every time he receives his credit card payment.
By using the figures, John just pays the minimum amount only as required in his credit card agreement. It will take him 57.5 years just to pay off the $ 10,000 debt, provided he not added new debt into his card. And he is paying close to $ 29,000 of interest just to pay off his $ 10,000 credit card debt. You see the picture?
What If You Pay Slightly More Than Minimum?
Using the same example, let say John makes some changes by adding $ 1 extra on his minimum payment and remain $ 11 if the monthly payment less than that. It will take him 51 years and paying $ 27,000 interest in order to settle his $ 10,000 debt. Here is summary of number of years and total interest paid for minimum payment + $ 0 to $ 10.
Extra dollar of $ 0; No Of Years: 57.5 years; Total Interest: $ 29,000
Extra dollar of $ 1; No Of Years: 51.0 years; Total Interest: $ 27,000
Extra dollar of $ 2; No Of Years: 56.5 years; Total Interest: $ 25,800
Extra dollar of $ 3; No Of Years: 42.2 years; Total Interest: $ 24,700
Extra dollar of $ 4; No Of Years: 39.5 years; Total Interest: $ 23,600
Extra dollar of $ 5; No Of Years: 37.0 years; Total Interest: $ 22,700
Extra dollar of $ 6; No Of Years: 34.8 years; Total Interest: $ 22,000
Extra dollar of $ 7; No Of Years: 33.3 years; Total Interest: $ 21,100
Extra dollar of $ 8; No Of Years: 31.5 years; Total Interest: $ 20.500
Extra dollar of $ 9; No Of Years: 30.0 years; Total Interest: $ 19800
Extra dollar of $ 10; No Of Years: 28.8 years; Total Interest: $ 19200
By paying extra $ 10 toward you minimum payment, you will save about 29 years and close to $ 10,000 of interest. So if you could pay an extra of $ 50 top of your minimum payment, you could settle you debt in 12 years and by just paying $ 9250 of interest instead of $ 29,000. Did you see the impact of extra dollar toward clearing credit card debt?
If you want to clear your credit card debt even faster than above method and you can afford the first minimum payment, as the case study: $ 200 to be paid each month until your credit card balance goes to zero. You will complete your debt payment within 8 years and paying only $ 8600 of interest. This is one of acceleration method that can speed your credit card debt payment by just remaining your first initial minimum payment for every month until your debt goes to zero.
Getting out of credit card debt is time consuming and costly. But if you could put extra effort by just adding extra dollars towards your debt payment, you could have debt free faster and save in a good amount of interest paid to your debt.