Comic: Minimum Payments Will Eat You Alive
This is an info-comic graphic produced for Mint.com.
When using credit cards, it is can be very dangerous to pay the minimum payment displayed on your statement. The minimum payment typically represents a very small percentage of your full balance due, sometimes as low as 1.5%. You could end up paying enormous total interest charges over the course of several decades to pay a card off by only paying the minimum.
With the passage of the CARD Act in 2009, all credit card statements are now required to display how long it would take the account holder to pay off the balance paying only the minimum payment. Below is a sample of the new information on an actual Chase card statement. Notice that the minimum payment is a tiny 1.9% of the full balance due ($16 divided by $824.84). You can significantly reduce your interest charges by making a small increase in your monthly payments. As seen in the comic, making monthly payments of 3% instead of 2% reduces the total interest charges by $35,000!
Be warned! Only use credit cards when you know that you can pay the full balance when it is due. Credit cards should be used for convenience–not for spending money that you don’t have and likely still won’t have next month.