Minimum Payment Can Cause Maximum Debt

New consumer protection laws might mean creditors have to give up charging sneaky hidden fees, but unfortunately it doesn't protect against another one of their tricks - the minimum payment.

When most folks pay their credit card bills, they pay the minimum due - usually set at between 2 and 4 percent of the balance. It might seem like a good deal at first - when you buy that $500 flat-screen TV for Christmas, for instance, you'll only pay $10 a month, making the large purchase feel more affordable during a time when most people are strapped for cash.

But that's what creditors want you to think. In truth, you'll be forking over far more money than if you had coughed up the cash upfront. Minimum payments were created to keep you in debt - and paying your creditor - for as long as possible.

Since a 2 to 3 percent minimum payment barely covers interest (especially now that banks are raising the APRs on many accounts) your monthly payments leave most of your principal balance intact. That means you could be paying for this year's Christmas present - or something as routine as the groceries - for decades.

Outsmarting creditors is as simple as realizing that a minimum payment is a suggestion, not an order. Some people might fear that paying anything over the minimum is throwing away money. Not true! Creditors don't want you to know this, but the more you pay over the minimum, the more your money will actually go to paying off your debt - and the more you'll save in the long run by eliminating all those future bill payments.

I know it's tempting to pay as little as possible when you're living paycheck to paycheck. But think of it as a temporary pain for a permanent solution. If you tackle your debt, you hopefully won't be living paycheck to paycheck. If you're having trouble getting started, don't give up - get help. Bankruptcy effectively lowers many debts by giving consumers an affordable payment method, not to mention legal protection. Find out how bankruptcy can help when you sign up for a free one-on-one debt analysis with a Chicago bankruptcy lawyer. We can show you how to say goodbye to creditor tricks and hello to financial freedom.

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