Missionaries of the Sacred

Sometimes it’s all too easy to think that we can avoid becoming entangled by debt as long as we are able to make the minimum payments on time. Perhaps we even have the ability to pay off our credit card balance, but decide to use that money for other things without realizing how much our credit card debt is costing us. While the MSC are not able to offer advice for creating the budget that works best for you or your family, we do encourage you to look at how much your credit card debt is costing you so that you can make more informed budget decisions. According to Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances (Federal Reserve Bulletin February 2009), the average interest rate on credit card balances was 12.5% and the median balance (for those carrying a balance) was $3,000.

If you owe $3,000 in credit card debt and are paying close to the average interest rate (say 13%), your minimum payment will be $62.50 (if your minimum payment is calculated by taking the interest plus 1% of the balance). If you only make the minimum payment, it will take you 211 months (17.5 years) to pay off the debt, and by then you would have paid $2,771 in interest (nearly as much as your original balance). If your interest rate is higher, you could easily pay more money in interest than you spent in the first place! (For the previous calculation at 20% interest, it would take you 226 months and you would pay $4,390 in interest).

Online Calculators

The true cost of paying the minimum

Check out this online credit card calculator from bankrate.com to find out how much paying the minimum payment is costing you, both in terms of how long it will take you to pay off your debt, and how much you’ll pay in interest. You can also calculate how long it’ll take you to pay off your account balance (and how much you’ll pay in interest) based on a fixed payment. To use this calculator, you’ll need to know your credit card balance, the interest rate on your credit card, and how your minimum payment in calculated.

Bankrate’s Credit Card Payoff Calculator

Check out this online tool by Bankrate to  calculate how many months it will take you to pay off your credit card balance at a fixed payment amount per month. Or you can enter the number of months in which you wish to be debt free and calculate how much you would need to pay per month. To use this calculator, you’ll need to know your credit card balance and interest rate.