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The folly of minimum credit card payments

By Greg McBride, CFA · Bankrate.com
Friday, May 14, 2010
Posted: 1 pm ET

Making only the minimum payment on a credit card is a treadmill to nowhere. Nothing illustrates this better than Bankrate.com's calculator "The True Cost of Paying the Minimum."

We've produced a video demonstrating this calculator and also providing a solution to accelerate debt repayment on even the tightest budget. The reason minimum payments take a lifetime to retire a credit card balance is that you're dialing down your payment each month as the balance declines.

Which brings us to the solution. Instead of dialing down your payment each month, why not make the same payment every month? If your minimum payment was $125 in month 1, why not stick with that same $125 in month 2, 3, 4 and so on?

The discipline to make the same payment every month will make a dramatic difference on the period of time necessary to repay a credit card balance.

Check out the video here.

Minimum credit card payments are a treadmill to nowhere

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