Friday, January 20, 2012

Minumum Payments

Credit card bills will offer a minimum monthly payment on the bill. The trap that many people fall into is not realizing that repeated use of the minimum is designed to create an elongated, interest filled payment plan. While new legislation like the CARD Act ( requires that credit card bills show the payment length and amount of interest that will be paid by using these payments, many credit card users do not understand the implications. The interest payments are astronomical. Compare what the minimum payment total will come out to based on what you originally purchased. Then realize that you are still going to need to purchase things, and likely add to the balance due. Don't just think about how much of your wage/salary will go towards paying down that balance for the things you purchased, think about of how much of your hard earned money is being thrown away at interest payments because you purchased when you shouldn't have. If you had just waited until payday, saved for a month, etc., you may have been able to avoid the accumulation of debt.

While some expenses must be placed on credit since a payment must be made (i.e. food or essentials) regardless of convenience, I recommend taking a close look at how they became necessitated by credit payments. While many people cannot afford these things when they need them and are compelled to buy them on credit because of poor wages, think about yourself specifically. If I hadn't purchased XYZ or spent XYZ at the bar, would I be putting my food on credit and carrying a balance?

Credit cards offer a false sense of security. They place the reality of purchases out of sight and out of mind. Minimum payments lull you into a false state of being afloat, while in reality you are in way over your head. The fact of the matter is that there is an elaborate financial system behind the scenes that serves as the backbone to these payment policies.

This is a quick introduction to my intentions with this blog. I hope to show you how the system operates behind the scenes to the point where no one cares if you are just making minimum payments even if the purchase was substantial. How are they making money if I haven't paid for my purchases? Easily. By understanding the framework of the system, you can better understand your interactions and decisions when dealing with credit beyond that of how much money is due when, and understand when you are being gamed.

1 comment:

  1. I agree! I try to keep my credit balance at 0 at all times.