The Mystery of the Never-Ending Credit Card Payment 

If you’re like most U.S. consumers, you have at least three (3) credit cards with an average interest rate of 15.9% and a combined total balance that exceeds $10,000.  And unless you’re different than most people, you probably make only minimum payments most months.

Do you ever wonder why your credit card balance never seems to get smaller?  To answer this question, we have to look at how interest compounds and how minimum payments are applied.

First, understand how to calculate your interest charges using your APR.

Most credit cards express your interest rate as an APR (annual percentage rate).  This is the number they use to calculate the fee you will pay them for the convenience and pleasure of charging purchases.  Even though it is an annual rate, it is used to calculate a monthly fee.

Example: Linda’s car breaks down on the way to work.  Repairs will cost $1,200.  Because Linda has no savings, she has to charge the repairs to her credit card so she can get to work.  Her credit card has an APR of 17.9%.  Assume she had no previous balance on her card and makes no more purchases on the card after the car repair.  Do the math:

(Credit card balance x APR) / 12 = monthly interest charge

($1200 x 0.179) / 12 = $17.90

Second, understand how your payment is applied to your balance.

Continuing the example from above, Linda charged $1,200 for a car repair.  She receives the bill and makes the minimum payment of $25.  However, $17.90 is applied toward interest first, leaving only $7.10 to be applied to the balance.  So, even though she made a $25 payment, her balance is only reduced to $1,192.90.  The next month, interest will be slightly lower ($17.79) but another $25 payment will only reduce her balance to $1,185.69.  Remember, interest is always paid first.

Third, calculate how long it will take to pay off your balance at the minimum payment.

Continuing the example from above, at the rate of $25 per month, it will take Linda 86 months (7.1 years) to pay off this credit card (assuming she never uses the card again).  And, Linda will have paid a total of $2,125 for a $1,200 car repair. That’s an extra $925 in interest!

If you’d like to see what your repayment schedule looks like, you can use a payoff calculator, such as the one provided by

Finally,  decide if paying off your credit cards is realistic.

If you’re attempting to pay off the debt yourself, you have to be realistic.  Unreasonably high monthly payments or overly long repayment plans will often fail because you’re not likely to stick to your plan.  And there’s always the risk that you will have a financial setback which will derail you entirely.

Start by writing out your budget, and after you’ve accounted for living expenses and something for your savings (because you always need a cushion) determine if you can afford to pay more than your minimum payment(s).  If not, you need to consider another way out.

Bankruptcy provides a faster and less expensive alternative.  The reason why you’re in debt really doesn’t matter .  Whether you’ve had a run of bad luck, or you’ve experienced an unexpected financial setback, bankruptcy offers relief to all consumers, no matter how much you make or how much property you own.

If you cannot realistically afford to repay your debt, you should consider bankruptcy.  Bankruptcy can potentially reduce your credit card (and other) debt to $0 in as little as 4 months.  It’s like a ‘get out of jail free’ card.

Bankruptcy offers other relief too.  Bankruptcy can immediately stop collection calls, lawsuits, garnishments and levies; prevent or delay foreclosures and sheriff’s sales; provide income-based repayment plans if necessary (for as little as 3 years).

If you need help, you’ve come to right place.  If you would like help analyzing your credit card debt and/or eligibility for bankruptcy, call, email or text for a free evaluation.


Call 908-353-6700    Text 908-266-4843     E-Mail

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