You and almost half of all Australians are repaying credit card debt but what you may not realise is that you are being set up to be paying off credit card debt for the rest of your life.
The trap is this:
- Believing that your minimum credit card payment amount is enough to avoid interest charges; and
- Believing that you’ll get your credit card balance down to zero quickly if you keep paying the minimum amount (only) every month
In fact, the minimum payment amount is only the bare minimum you have to pay to meet the obligations of your credit card’s contract. All you are doing is avoiding a late payment fee ensuring you can keep using your card.
If you continue to pay the minimum payment amount in the belief that you’ll get your credit card balance down to zero quickly, it will actually take you decades to pay off your debt.
And this is where the banks make their money.
If you only pay the minimum payment amount you’ll be charged a month’s worth of interest calculated on your balance each day for that statement period. You will also lose your interest-free days for the next statement period, meaning interest charges will keep adding up.
So if you didn’t pay your balance (closing balance on your statement) in full last month, you will be paying interest on interest.
So the moral of the story is pay off your credit cards and take advantage of the interest free feature of your card.