If You Are Overextended You May Only be Paying Credit Card Interest and Not Touching the Balance

There is one thing that confuses many people who have credit cards: they pay and pay on their credit cards but they never seem to get any lower. Take Shawna. Shawna got a credit card when she was in college and, by the time she’d finished college, had accumulated roughly $1,200 on the credit card. Every month that she received a statement and paid the minimum amount due, and the balance continued to be around $1,200. She honestly couldn’t understand why her balance never went down, until someone explained to her about how the credit card interest could make it almost impossible for her to pay off her card if she only paid the minimum.

Interest Means More Money For the Company

Have you ever stopped to wonder how credit card companies make their money? They make it by charging interest on the amount that you borrow. If you were simply to pay back the money that you borrowed, without paying any interest, the company would never have any money. Instead of going bankrupt, they charge interest and that amount is what they use to pay their employees and to line their own pockets. But think about this: if everybody paid off their credit cards when they received each statement, the company would not be able to make anywhere near the amount of money that they needed in order to pay their employees.

Instead, they try to make sure that they get as much money as possible by sending out bills that only have a minimum amount of money due on the balance every month. And guess how much that minimum is? Roughly the amount of interest that has been accrued for that month. While you may pay something like $5 or $10 on the balance, you are mostly paying the interest. Continue to pay just the interest and only $5 or $10 on your balance and you can start to see why it is next to impossible to pay off your credit cards just by paying the balance.

Other Options

There are other options that you can do in order to be able to pay off your credit cards sometime within your lifetime. The first is to make sure that you pay more than the minimum amount every month. If your minimum is $25, pay $50. This will put at least $25 on the balance and while that may seem like a small amount, it is more than just five or ten dollars. The more money you can put on the balance, the faster you can pay off your credit card.

Or you can work with a debt management company like Impact Debt Settlement in order to get your interest rate reduced. This will make it easier to pay off the unsecured credit card debt that much faster, as you don’t have anywhere near the same amount of interest to pay every month and can pay more down on the principal amount due.