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Minimum Monthly Payments Can Keep You Underwater

On Behalf of | Mar 14, 2018 | Bankruptcy

If your budget is precariously balanced, one unforeseen expense can send it toppling. A car repair, appliance replacement or unexpected medical bill can wipe out your meager savings or force you to recalculate the amounts you can pay to your other creditors.

A credit card can be a lifesaver in such situations. After taking care of the emergency, you can parcel the payments into smaller, manageable amounts. Credit cards are also handy when you run short on cash or want to make a large, unplanned purchase. Unfortunately, those small, manageable payments don’t always make life easier in the long run.

Faster ways to pay off your balances

If you have reached the point where multiple, maxed-out credit cards have your finances in a perpetual tailspin, you are not alone. Many households in Ohio and across the U.S. have credit card debt that has become unmanageable, whether from one major expense or from steady usage. While you may spend many hours hoping for a windfall that will help you catch up on your debt, making a plan to pay it down is a more practical solution.

Some methods of paying off credit card debt are better than others. Here are a few payment option examples:

  • Minimum monthly payment: Nearly 30 percent of those who carry a balance on their plastic make only the minimum payments each month. Using this method takes years to pay off the balance since the minimum due decreases each time you make a payment. Additionally, only a small percent of your payment goes to the principal, so you may end up paying hundreds or thousands more than you charged in the first place.
  • Snowball payments: For the credit card with the smallest balance, pay the minimum due plus any additional amount you can add. Pay the same amount every month no matter how low the minimum payment goes until you pay off that credit card. Then apply the amount you paid on the first card to the minimum payment on the card with the next highest balance, and so on until your cards are paid off.
  • Avalanche payments: Using the same pattern of payments as the snowball method, apply your extra payment first to the card with the highest interest. In this way, you will more quickly pay off the balance that is costing you the most money.

Of course, once the cards have a zero balance, the trick is to discipline yourself not to allow the balances to accumulate again. These quick payoff methods are also contingent on the idea that you have extra funds to apply and that you can make the minimum payments to begin with.

If these basic steps seem impossible to you, speaking with a bankruptcy attorney may be a wise step. You can learn if bankruptcy is a viable alternative to wipe out your credit card debt and start with a fresh financial slate.