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The high cost of credit card minimum payments

Households around the country with revolving debt balances owe an average of $6,081 to credit card companies. Paying this debt off can be difficult for Louisiana consumers who are struggling to meet their financial obligations, and many credit card holders are only able to make their minimum monthly payments. Credit card minimum payments are usually $20 or $25 when revolving balances are low, but they climb to 2 to 3 percent of the outstanding amount when debt levels rise.

Credit card balances can take decades to pay off when borrowers make only minimum monthly payments as revolving debt interest rates are generally far higher than the rates offered on mortgages or installment loans. The financial information website NerdWallet calculated how long it would take to pay off $6,081 at 14.99 percent interest, and it found that it would take 14 years and cost more than $4,000 in interest if only minimum payments are made.

Doubling the minimum payment will pay off the same balance in less than six years and save $2,555 in interest charges, but this is not a realistic option for many families. Popular strategies for paying down debt such as the avalanche method, where debts with the highest interest rates are paid off first, and the snowball approach, where smaller debts are prioritized, may also be impractical for those with unmanageable financial situations.

People struggling with high credit card balances are sometimes reluctant to pursue their debt relief options because they have assets that they wish to protect. Attorneys with experience in this area could point out that filing for bankruptcy under Chapter 13 provides an escape from debilitating monthly payments while allowing borrowers to keep their homes and automobiles. Attorneys could also explain that submitting a Chapter 13 bankruptcy petition will generate an automatic stay that puts an immediate end to wage garnishments, creditor lawsuits and harassment from bill collectors.

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