When it comes to debt, doing the bare minimum may seem like an easy and convenient option, but it can cost you more in the long run. By not taking proactive steps to reduce or eliminate your debt, you could be paying more in interest, fees, and penalties. In this article, we’ll explore how doing the bare minimum with debt is costing you and provide statistics to back up this claim.
Paying Just the Minimum
When you make a credit card payment, you might see an option to pay just the minimum amount due. While this may seem like a good idea, it can actually end up costing you more in the long run. When you pay just the minimum, you’re only covering the interest and fees on your balance and not making a dent in the principal amount. This means that your debt will continue to accrue interest, often at a high rate, and take longer to pay off.
According to a survey by CreditCards.com, nearly 40% of credit cardholders are paying just the minimum amount due each month. This means that they are stuck in a cycle of debt, where they are only paying off the interest and fees and not making any progress towards paying off the principal.
The Cost of Doing the Bare Minimum
So, what is the actual cost of doing the bare minimum with debt? Let’s take a look at some statistics:
1. Credit Card Debt: The average credit card debt per household in the US is $5,315, and the average interest rate is around 16%. If a person only pays the minimum amount due each month, it could take over 20 years to pay off the debt and end up paying over $12,000 in interest.
2. Student Loans: The average student loan debt in the US is over $32,000. If a person only pays the minimum amount due each month, it could take up to 20 years to pay off the loan and result in paying over $16,000 in interest.
3. Mortgage: The average mortgage debt in the US is over $200,000. Even a small increase in the interest rate can mean paying thousands of dollars more in interest over the course of the loan.
Taking Action to Reduce Debt
The good news is that there are steps you can take to reduce your debt and avoid the cost of doing the bare minimum. Here are a few tips:
1. Make a Budget: Create a budget to see where your money is going and identify areas where you can cut back.
2. Pay More than the Minimum: Even a small increase in your monthly payment can help reduce your debt and save you money in interest.
3. Consolidate Your Debt: If you have multiple high-interest debts, consider consolidating them into one lower-interest loan.
4. Seek Professional Help: If you’re feeling overwhelmed by your debt, consider seeking the help of a financial advisor or debt counselor. They can help you develop a plan to reduce your debt and improve your financial situation.
While doing the bare minimum with debt may seem like an easy option, it can end up costing you more in the long run. By taking proactive steps to reduce your debt, such as paying more than the minimum and consolidating your debt, you can improve your financial situation and save money in interest and fees. Remember, the cost of doing the bare minimum with debt is simply not worth it.