How To Pay Credit Cards - Pay More Than The Minimum

Posted in Debt Help
Posted by Ted Michalos, BA, CPA - LIT

how-to-make-paymentsFor many people – the title of this article, How to pay credit cards – pay more than the minimum goes without saying.  They simply do it automatically.  They either pay off the balance in full each month, or pay down as much of the balance as they can.  They understand that a credit card is a convenience – they use it to buy things, not to pay for them.

Canadians Carrying a Balances

We hired Harris Decima to survey Canadians, and we discovered that 38% of Canadians are currently carrying a balance on their credit card, and of those people almost half always or often carry a balance.  That's proof that there is a large portion of the population that only pays the credit card minimum amount they are asked to pay – either because that's all they think they have to pay (which is technically correct) or it is all they can afford to pay (and for some people even that can be hard to do).

Let's deal with the first group – that pay the credit card minimum because that is all they are required to pay.  A typical bank credit card charges anywhere from 11% to 25% interest on outstanding balances – let’s call it 18% on average.  That means if you carry a balance when you use a credit card the items actually costs more than the price you paid at the cash register. For example, let’s say you bought your three kids shoes for the second half of the school year – the bill for six pairs of kids’ shoes was $220.  If you use a credit card and only pay the credit card minimum required each month that means you will actually pay $260!  For kids shoes!  That’s $40 extra you could have used in some other way...

If that doesn't bother you, then consider this.  If you only pay the credit card minimums and you continue to use your credit cards every month then over time your credit card balances are going to grow and grow and grow...  Until at some point you may fall into the second group of people – the ones that only pay the credit card minimums because that's all they can afford to pay.

People that are only able to pay the credit card minimums are caught in a debt trap.  The minimum payments are so large that they use up all of their available cash.  If they need to make any new purchase they have no choice but to use a credit card to pay, and it makes the problem worse.   Here's a simple example: let’s say you carry $5,000 in credit card debt at 18% interest.  That means you’ll pay $900 a year, or $75 a month just in interest.

Now take that $5,000 example and compare it to the total balance on all of your credit cards: $10,000, $15,000, $20,000 or more...  the amount of interest you are paying is crippling.  More importantly, what else could you be doing to improve your life if you had an extra $75, $150, $225, $300 or more available to spend every month?

If you are caught in the credit card debt trap it may be time to seek professional help.  Talk to your banker, or whomever helps you make financial decisions.  If you don’t have someone like that to talk to, our team of professionals at Hoyes Michalos is ready to help.  Contact us by calling 310-PLAN (no area code required) or by emailing us, and like I say on our radio commercials if you give us 30 minutes we can show you how to be Debt Free in 30.   Now is the time to speak to a professional to find out how to pay off your credit cards and get out of debt.

About Ted Michalos

Ted is our co-founder and is a Chartered Professional Accountant, certified Insolvency Counsellor, Licensed Insolvency Trustee, Consumer Proposal Administrator, and the President of Hoyes, Michalos & Associates Inc. Ted meets personally with clients in our Guelph office.

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