Minimum Payments Delay Improving Your Financial Health

women sitting on bed with calculator and credit cards laid out with cash

At the Law Office of Joel R. Spivack, when addressing the financial strategies of my clients, one recurring issue that presents itself is the practice of only making the minimum payments on credit card balances. It is imperative to understand why this approach can be detrimental to one’s financial health. The interest rates associated with credit cards are typically much higher than other forms of lending. By only paying the minimum, a significant portion of your payment is being applied towards this interest rather than the principal balance. Over time, this results in an elongation of the debt repayment period, often causing the borrower to pay multiples of the original borrowed amount.

Making Minimum Payments Could Impact Your Financial Health

Consistently making only the minimum payment can signal to creditors that you are struggling to manage your debt. This perception can lead to reduced borrowing limits, higher interest rates, or even the denial of future credit. By prolonging the repayment period and accumulating more interest, one exposes themselves to a heightened risk of insolvency. As a bankruptcy attorney, I have witnessed firsthand the consequences faced by individuals who become overburdened by such debt. Adopting a more aggressive repayment strategy early on can mitigate these risks, ensuring a more secure financial future.

Check Out This Scenario

Paying only the minimum payments on your credit cards can be detrimental to your financial health. Considering the scenario of paying the minimum balance on a credit card with a $2,000 balance that has an 18 percent annual rate means that it will take about 370 months to pay this card off completely. That’s over 30 years.

That’s not even taking into account that the amount of money being paid to interest and other charges will be around $4,931, which is 146 percent more than what the original balance has been on the card. Many people are unaware of how to correctly calculate the interest that accrues when making minimum payments, with some people believing that by making the minimum monthly payments on time they are not being charged the interest.

FICO Score Considerations

This can have an impact on your FICO credit score. Your FICO score is based on several factors, and about 30 percent of your score is based on the amount of money that’s owed on your credit accounts. When a higher percentage of your available credit is being used, it can signal to creditors that you may be overextended to the point where late or missed payments may occur in the future. However, keeping no balance on your cards may not be the best policy either, along with not having any credit cards at all. The best place to be for your credit score is having a small balance and making timely payments.

Get a Free Consultation with an Experienced Debt Relief Attorney Today!

If you are drowning under credit card payments, and it feels as though your debt is not moving, it may be time to consider bankruptcy. Bankruptcy laws were created to give you a fresh start when you’ve become overwhelmed. This may not be an easy choice for you to make, but speaking with an experienced bankruptcy attorney can help you to learn whether this is the right choice for you. Contact the Law Office of Joel R. Spivack today to discuss your finances and the potential for bankruptcy in your future.

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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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