Why paying the minimum payment will keep you in debt forever

Now that the holidays are behind us, most people are starting to feel the pinch of all the fun they had last month. Credit card bills are in the mail and lots of us are feeling overwhelmed with how much we owe. Our Mastercard balance is significantly bigger than the average month (40% more to be exact) but like many of you, our paychecks stayed the exact same.

What can be troubling is that lots of people carry high balances on their credit cards and only pay the minimum payments. How many times have you said, “well, at least I made the minimum payment!” For the vast majority of my life with credit, I had said this statement more times than not. I never knew how financially detrimental this was. It really hit me when Tolga broke down the math of only paying the minimum payment. He ended up sleeping on the couch that night because I was crying myself to sleep, in panic that I would NEVER pay back my debt.

Back in the mid-2000’s, I had racked up $7,000 of consumer debt and was struggling to pay it off. Most months, I could only afford the minimum payments. Somehow, I felt like, as long as I was paying something, it’s better than nothing. Well, thanks to math and some harsh reality, I found out that it’s actually not helpful at all. If I had continued to pay only the minimum payment of $140,  it would have taken me over 9 years to pay off the debt.  The crazy thing is that I would have paid more in interest than for the purchases itself. What the actually effing hell is with that?!

Tolga helped me consolidate my debt, by having me transfer my credit card balance to a low interest personal line of credit. For the most part, I managed to pay twice the minimum payment, which was $280 per month, and I was able to rid myself of that debt in less than 2.5 years.

So instead of paying over $8,000 in interest, I ended up paying $750 in interest. That’s essentially over $7,000 I got to keep rather than give it to the credit card company.

If you don’t have a line of credit, or don’t qualify, there is one more option to consider. Double down on the minimum payment and stick to it. The difference is remarkable. Instead of over 9 years of paying it down and racking up over $8,000 in interest, you would cut that down to under 3 years and only around $2,000 in interest. That’s savings of $6,000 and 6 years just by doubling up on your minimum payment.

Minimum Payments - Graphs

Another thing you could try is utilize websites to help figure out what different scenarios look like for you. A great website that I found that is super helpful and free is NerdWallet. You can add all the different debts you have and their corresponding interest rates, and it will calculate how you should go about paying it down the fastest. As well you can play with it and see how much faster you can pay it off and the interest savings you get based on different payment levels. 

There is one cardinal rule with paying down your consumer debt. You will only make  progress if you aren’t racking up any new debt. You have to be focused on paying down the old debt and minimizing your big spending as much as possible. Cut up your credit card or ask someone to hide it. Otherwise, you will find yourself right back where you began. It took me years to figure this out, but now that I have, I feel a huge weight off my shoulders and Tolga no longer has to worry about sleeping on the couch – for now!


Minimum Payments - Table


Photo by rawpixel.com on Unsplash


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