With the shopping season well under way a ton of people are spending more money than they have on their credit cards as a way to get those gifts that they can’t really afford. The usually mindset for this I find is that people factor in the income they make and how they only have to pay a minimum amount every month. Therefore, it seems perfectly feasible. I actually heard a conversation about this recently too where it just seems so normal for many people as to them that is just the way it is when you start managing money and credit.
Sometimes we just need an actual visual of this where it’s not until you see the crazy interest rates that make you wonder why you would ever do that. Here is a simple calculation of trying to pay off a $1000 credit card bill by simply paying the minimum every month with a 15% interest fee.
| Month | Minimum Payment |
Interest Incurred |
Remaining Debt Balance |
|
| 1 | $22.50 | $12.50 | $990.00 | |
| 2 | $22.28 | $12.38 | $980.10 | |
| 3 | $22.05 | $12.25 | $970.30 | |
| 4 | $21.83 | $12.13 | $960.60 | |
| 5 | $21.62 | $12.01 | $950.99 | |
| 6 | $21.40 | $11.89 | $941.48 | |
| 7 | $21.18 | $11.77 | $932.07 | |
| 8 | $20.97 | $11.65 | $922.75 | |
| 9 | $20.76 | $11.53 | $913.52 | |
| 10 | $20.56 | $11.42 | $904.38 | |
| 11 | $20.34 | $11.30 | $895.34 | |
| 12 | $20.14 | $11.19 | $886.39 | |
| 13 | $19.94 | $11.08 | $877.53 | |
| 14 | $19.75 | $10.97 | $868.75 | |
| 15 | $19.55 | $10.86 | $860.06 | |
| 16 | $19.35 | $10.75 | $851.46 | |
| 17 | $19.15 | $10.64 | $842.95 | |
| 18 | $18.97 | $10.54 | $834.52 | |
| 19 | $18.78 | $10.43 | $826.17 | |
| 20 | $18.59 | $10.33 | $817.91 | |
| 21 | $18.40 | $10.22 | $809.73 | |
| 22 | $18.22 | $10.12 | $801.63 | |
| 23 | $18.04 | $10.02 | $793.61 | |
| 24 | $17.86 | $9.92 | $785.67 | |
| 25 | $17.68 | $9.82 | $777.81 | |
| 26 | $17.50 | $9.72 | $770.03 | |
| 27 | $17.33 | $9.63 | $762.33 | |
| 28 | $17.15 | $9.53 | $754.71 | |
| 29 | $16.98 | $9.43 | $747.16 | |
| 30 | $16.81 | $9.34 | $739.69 | |
| 31 | $16.65 | $9.25 | $732.29 | |
| 32 | $16.47 | $9.15 | $724.97 | |
| 33 | $16.31 | $9.06 | $717.72 | |
| 34 | $16.15 | $8.97 | $710.54 | |
| 35 | $15.99 | $8.88 | $703.43 | |
| 36 | $15.82 | $8.79 | $696.40 | |
| 37 | $15.66 | $8.70 | $689.44 | |
| 38 | $15.51 | $8.62 | $682.55 | |
| 39 | $15.36 | $8.53 | $675.72 | |
| 40 | $15.21 | $8.45 | $668.96 | |
| 41 | $15.05 | $8.36 | $662.27 | |
| 42 | $15.00 | $8.28 | $655.55 | |
| 43 | $15.00 | $8.19 | $648.74 | |
| 44 | $15.00 | $8.11 | $641.85 | |
| 45 | $15.00 | $8.02 | $634.87 | |
| 46 | $15.00 | $7.94 | $627.81 | |
| 47 | $15.00 | $7.85 | $620.66 | |
| 48 | $15.00 | $7.76 | $613.42 | |
| 49 | $15.00 | $7.67 | $606.09 | |
| 50 | $15.00 | $7.58 | $598.67 | |
| 51 | $15.00 | $7.48 | $591.15 | |
| 52 | $15.00 | $7.39 | $583.54 | |
| 53 | $15.00 | $7.29 | $575.83 | |
| 54 | $15.00 | $7.20 | $568.03 | |
| 55 | $15.00 | $7.10 | $560.13 | |
| 56 | $15.00 | $7.00 | $552.13 | |
| 57 | $15.00 | $6.90 | $544.03 | |
| 58 | $15.00 | $6.80 | $535.83 | |
| 59 | $15.00 | $6.70 | $527.53 | |
| 60 | $15.00 | $6.59 | $519.12 | |
| 61 | $15.00 | $6.49 | $510.61 | |
| 62 | $15.00 | $6.38 | $501.99 | |
| 63 | $15.00 | $6.27 | $493.26 | |
| 64 | $15.00 | $6.17 | $484.43 | |
| 65 | $15.00 | $6.06 | $475.49 | |
| 66 | $15.00 | $5.94 | $466.43 | |
| 67 | $15.00 | $5.83 | $457.26 | |
| 68 | $15.00 | $5.72 | $447.98 | |
| 69 | $15.00 | $5.60 | $438.58 | |
| 70 | $15.00 | $5.48 | $429.06 | |
| 71 | $15.00 | $5.36 | $419.42 | |
| 72 | $15.00 | $5.24 | $409.66 | |
| 73 | $15.00 | $5.12 | $399.78 | |
| 74 | $15.00 | $5.00 | $389.78 | |
| 75 | $15.00 | $4.87 | $379.65 | |
| 76 | $15.00 | $4.75 | $369.40 | |
| 77 | $15.00 | $4.62 | $359.02 | |
| 78 | $15.00 | $4.49 | $348.51 | |
| 79 | $15.00 | $4.36 | $337.87 | |
| 80 | $15.00 | $4.22 | $327.09 | |
| 81 | $15.00 | $4.09 | $316.18 | |
| 82 | $15.00 | $3.95 | $305.13 | |
| 83 | $15.00 | $3.81 | $293.94 | |
| 84 | $15.00 | $3.67 | $282.61 | |
| 85 | $15.00 | $3.53 | $271.14 | |
| 86 | $15.00 | $3.39 | $259.53 | |
| 87 | $15.00 | $3.24 | $247.77 | |
| 88 | $15.00 | $3.10 | $235.87 | |
| 89 | $15.00 | $2.95 | $223.82 | |
| 90 | $15.00 | $2.80 | $211.62 | |
| 91 | $15.00 | $2.65 | $199.27 | |
| 92 | $15.00 | $2.49 | $186.76 | |
| 93 | $15.00 | $2.33 | $174.09 | |
| 94 | $15.00 | $2.18 | $161.27 | |
| 95 | $15.00 | $2.02 | $148.29 | |
| 96 | $15.00 | $1.85 | $135.14 | |
| 97 | $15.00 | $1.69 | $121.83 | |
| 98 | $15.00 | $1.52 | $108.35 | |
| 99 | $15.00 | $1.35 | $94.70 | |
| 100 | $15.00 | $1.18 | $80.88 | |
| 101 | $15.00 | $1.01 | $66.89 | |
| 102 | $15.00 | $0.84 | $52.73 | |
| 103 | $15.00 | $0.66 | $38.39 | |
| 104 | $15.00 | $0.48 | $23.87 | |
| 105 | $15.00 | $0.30 | $9.17 | |
| 106 | $9.28 | $0.11 | $0.00 |
If you think about it in this example it will take roughly 106 months to get rid of your debt. That’s months not days which is over 8 years. In the process you would have paid about $729.14 in interest fees. Does that not make you re-think about spending money on a credit card that you don’t actually have while just paying the minimum?
In many ways I feel that paying the minimum on a credit card is like a trap of sorts where it is teaching you to stay in debt. It’s almost like you are being encouraged to have these bad habits so that you remain a very profitable customer of sort. That just isn’t a good idea. In my mind the only money the credit card company should be making off you are the transaction fees they get from merchants as a result of you using their card in a responsible way. Therefore, companies should be giving you incentives or paying you to use it more. Hence, taking advantage of things like cashback rewards.
Wouldn’t you rather have like that extra $700 too? Taking over 8 years to just pay off a $1000 just seems off the wall when you look at the big picture. So if you are thinking of going with a paying the minimum credit card route then maybe you just should hold off until you actually have enough money to pay it off all at once.