An Example of Why Making the Minimum Payment on a Credit Card is a Horrible Idea

My credit card statement recently changed and now includes a box detailing what it would cost me to pay back my balance under a couple different scenarios. (I’m assuming this addition is part of the new credit card regulation/rules imposed by Washington.) The information highlights what a terrible idea it is to pay off the minimum balance on a credit card (or pay off the card in any way that takes a bit of time for that matter). Consider the following from a recent statement of mine:

• I had $2,888.74 in charges (FYI, $1,000 of that was for gold dollar coins)
• If I made no additional charges on the card and only made the minimum payment ($28) each month, it would take me 18 years to pay off this debt and end up costing me $5,546.01.
• If I made no additional charges on the card and only made a payment of $95.36 each month (not sure how they came up with this amount — maybe it’s the 36-month pay-off amount), it would take me 36 months to pay off this debt and end up costing me $3,432.96.

It’s pretty clear from these numbers that making the minimum payment only is a very bad deal for the cardholder. I assume that’s the point of the information — to make people see what a bad deal it is to hold on to credit card debt and to get them to pay it off ASAP.

BTW, my card has a 13.24% APR. The numbers would be much worse for a cardholder with a 15% or 20% APR.