Why It Isn’t Enough to Pay the Minimum

“Can you tell me how long it will take to pay a $2,000 credit card balance? I’m paying the minimum every month and the balance doesn’t seem to be going down.”

You could be right about the balance. First thing that you should know is that credit card minimum payments are only about 1.5% and 2.5% of the balance. So for a $2,000 balance, that would be between $30 and $50 per month. Included in that minimum payment is the finance charges (that’s how the bank makes its income – from the fees). To let you know how long it would take to pay off, I would need your interest rate (which I don’t have), but here are two examples:

$2000 Credit Card Balance at 6% Interest

Rate	Minimum Pmt	Pay Off Time
6%	$30	80 months or 6 years
6%	$50	45 months or 3 years

$2000 Credit Card Balance at 12% Interest

Rate	Minimum Pmt	Pay Off Time
12%	$30	108 months or 9 years
12%	$50	51 months or 4 years

You can see that little of your payment is actually going towards reducing the $2,000 balance. The estimate above also assumes that you aren’t using the credit card to make more purchases.

You do have a couple options for a quicker payoff.

Option 1: Pay more than the minimum amount. Paying as little as $10 more per month will help you see some progress. You’re saying you don’t have an extra $10 to spend on your payment? Take a look at your spending habits and see where you can come up with that money. Bring your lunch to work, borrow books and movies instead of buying, and get your hair cut every 7 weeks instead of every 6 weeks. Little things add up. The great thing about this, is that it’s temporary. Once your debt is paid off, you can breathe a sigh of relief, and go back to the 6 week haircut or treat yourself to a rental. Or, you may find you have new habits that will allow you to start saving money.

Option 2: Lower the interest rate. You can do this by transferring the balance to another card that’s offering a zero percent rate or a low rate. These are limited time offers. If you don’t pay it off on time, you’ll get charged interest again. Make every effort to pay off the balance before the special offer is up. This way you can make sure that most or all of your payment is going toward the balance and not toward fees.