Chicago Bankruptcy Lawyers Caution Against Paying Minimum Balance
I've got good and bad news. First, the bad - credit card companies are raising minimum payments. Now, for the good - credit card companies are raising minimum payments.
No, I haven't gone crazy. You see, higher minimum payments are actually a blessing in disguise. Yes, they might be more difficult to manage if you're accustomed to paying less. But in the long run, being forced to cough up more cash can actually save you money.
Here's how. For the last several years, credit card companies commonly set minimum payments at just 2-3%. For most folks, that rate barely covers the interest levied on their balance. And if most of your payment is going to interest, you're not doing much to reduce the principal - the original payment you made for your purchases. Credit card companies have you right where they want you. The minimum is small enough that you're unlikely to default - and you're given the (false) impression you're not paying that much. On the other hand, they can guarantee you'll be paying them for decades.
But the economic pendulum may actually be swinging back in your favor. As banks scramble to make up for past defaults and pending new regulations, they're raising rates, adding fees and, you guessed it, increasing minimum balances. By increasing your payment beyond the minimum, you could potentially save thousands a year in interest.
For instance, let's say you owe $10,000 on a 20% APR card. You're currently paying 2%. At that rate, it will take you $47,000 years and more than 50 years to pay off your balance.
Now let's say you pay 5% of your balance every month. You'd reduce your total interest payments to $15,000 and 11 years. See what I mean? A little more payment equals a lot of savings.
Why spend the rest of your life paying for the things you're buying today? When you pay down that debt, you pay yourself because you get to keep more of your paycheck. Think of where that money could go. Maybe you could comfortably pay the mortgage for the first time. Maybe you wouldn't have to scrimp to buy groceries each week. Maybe you could bite the bullet and start saving for your future.
It's possible - even if you have a large debt burden. An individual bankruptcy plan can reorganize many forms of debt and, in some cases, discharge it completely. Find out whether a Chapter 7 or Chapter 13 bankruptcy plan could help you break free from credit card debt - and up to thousands of dollars in interest - when you sign up for a free one-on-one debt analysis with one of our Chicago bankruptcy attorneys. Who would have thought that by raising your payments, credit card companies could actually be setting you free?