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Owning a credit card means you likely understand that missing a payment or only paying a fraction of your total balance each month can trigger a dangerous debt cycle. Credit cards have an exceptionally high interest rate, which can quickly escalate when you don't settle the balance in full every month.
Credit cards are designed to easily trap users in debt. They make it simple by highlighting the “minimum payment” on your statement or online account, and if you're not careful and just pay the minimum amount, you could end up owing much more over time.
CNBC outlines how paying only the minimum due can quickly snowball into a significant financial burden:
The
average household carrying credit card debt
owes about $5,700, with those under 35 owing slightly more at $5,808. If you were to make just the minimum payment on a $5,000 debt at the average interest rate of over 17 percent, you'd be stuck in debt for more than 18 years and pay roughly $11,400 in interest alone.
As Mytour previously mentioned, some credit card issuers set the minimum payment as low as one percent of your total balance. While they market this as providing you, the consumer, with more flexibility, it ultimately benefits them by allowing them to profit off your debt. (However, if you're facing a financial hardship, making the minimum payment can help maintain your credit score and prevent creditors from hounding you while you regain stability.)
This is why it's crucial to view a credit card as a tool to achieve your financial goals, rather than a source of endless spending. It’s all too easy to charge more than you can afford, but you should only use your card for amounts you can repay in full each month. Credit card companies rely on the fact that many consumers won’t do this.
