Why minimum payments take so long
In shortHow interest works, and why paying a little more than the minimum saves a lot.
General information only. It isn't financial advice and doesn't know your situation.
Interest is what a lender charges you to borrow. It's a percentage of what you still owe, added every month.
The minimum payment is the least you can pay without a late fee. Much of it goes on interest, so what you owe shrinks slowly.
Example: a $3,000 card at 20% a year
- Interest in month 1
- about $50
- Pay $75 a month
- about 5 and a half years, about $2,000 in interest
- Pay $150 a month
- about 2 years, about $680 in interest
- Pay $300 a month
- about 1 year, about $310 in interest
Example only, with nothing new added to the card. Many cards lower the minimum as you pay, which can stretch it past 15 years.
At $75 a month, only about $25 comes off what you owe in the first month. Double the payment and it's gone in less than half the time.
Your statement often shows how long the minimum alone would take. It's worth a look.
In Stuffed, add the debt's rate on Pay off a debt. Change the amount each payday and watch the paid off date move.
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