Making the Minimum Payment

The average student will be faced with the prospect of some credit card debt at some point in his or her life. This article will explain the reasons why you should make a payment beyond the minimum payment. It will cause you a great deal of harm if you only make the minimum payment and that is why it is a student credit card no-no.

If you buy a high definition television for two thousand dollars and your credit card rate is right around eighteen percent, let’s say you make the minimum payment. It will take you roughly twenty-seven years to pay this off and you will end paying almost five thousand dollars in finance charges. Think about that: you not paying beyond the minimum payment has ended up costing you five thousand dollars in finance charges. There is an assumption that your monthly minimum payment comes in at two percent.

If you make four percent of your monthly payment, this will cut down the amount of time you make a payment on the credit card by about seventeen to twenty years and you will only have to pay a thousand dollars in interest. Think about paying above the minimum payment and what this has done with this example from above. You have been able to keep four thousand dollars more in your pocket. Think about if you were to invest at a rough return of 10% a year. That four thousand dollars could double over that twenty years at least and be ahead by twelve thousand dollars.

Whenever you, as a student, think about your credit cards as part of your expenses. Budgeting is about income and expenses. You need to make sure that you increase your income while decreasing your expenses. You can decrease your monthly expenses by increasing your credit card payment. This will allow you to get rid of a monthly payment much more quickly and the expense is going to be your highest monthly expense. As you pay off the credit card, you are paying yourself 18% interest because you do not have to pay that interest to the credit card companies.

Within your financial life, you will be introduced to the concept of compounding. This is what allows you to retire. The amount of time you are in the stock market or have other investments allows your money to compound and grow so steadily over the years. Think of this same concept with your credit cards. If you continue to make the minimum monthly payment and end up paying four more thousand dollars in interest, you have also robbed yourself of the compounding effort that could have happened if that money were in the market for an extended period of time.

Money is an interesting thing and you can see with this article. Making the minimum monthly payment is a student credit card no-no and is not something you can do without hurting yourself in the long run. Good luck with this!