Comments on: Credit Card Minimum Payments

By: ManuelRC

ManuelRC — Thu, 27 Aug 2009 08:42:12 +0000

I have Fixed Rate at 3.99%. The credit card company increase from 2% to 5% the capital. I called them and gave me the following options: First, pay the increased amount of payment (my case from $210 to $498)……… or change my fixed rate to 7.99% to lower to 2% the capital. IS IT RIGHT?……….

By: Carnival of Debt Reduction #161 - Fall Colors Edition

Carnival of Debt Reduction #161 - Fall Colors Edition — Mon, 13 Oct 2008 09:00:27 +0000

[...] Dad presents Credit Card Minimum Payments, More or Less posted at Frugal [...]

By: Missy Crystal Dolphin

Missy Crystal Dolphin — Thu, 09 Oct 2008 07:28:27 +0000

With paying minimum amounts on credit cards and revolving credit that re-calculated the repayments, I calculate at paying the minimum amount when the card is maxed unless I am doing debt reduction. Which will be starting very soon, since we just moved and have no intention of moving for a few years (we are renters).

By: Frugalized

Frugalized — Thu, 09 Oct 2008 04:50:03 +0000

I feel silly saying this, but I never heard of Dave Ramsey until reading this post. I’ve put his book on my Amazon wish list to remember to buy later on. It’s worth a read I assume?

By: Holland

Holland — Tue, 07 Oct 2008 23:41:47 +0000

Thanks for your comments DavidK. I absolutely agree that paying down high interest rates first makes sense. And I understand first hand why Dave Ramsey encourages people to pay down the smallest loans first – they see results quicker and they’re gratifying. He wants people to get motivated to go after their debt and nothing gives you ants in the pants like paying off a loan free and clear!

By: DavidK

DavidK — Tue, 07 Oct 2008 21:31:43 +0000

Bleh, that shows I shouldn’t respond to comments at the end of the work day.

@Holland, sorry, while I was writing I forgot that you already had an emergency fund. Just pay everything off and enjoy the financial freedom to save, invest and live wonderfully in your retirement!

By: DavidK

DavidK — Tue, 07 Oct 2008 21:29:18 +0000

A great addition there Holland.

Keep in mind though that the modified snowball plan I recommend (pay off higher interest items first) works best for revolving accounts where the payment will scale with the amount of debt remaining on that account. A student loan is a simple loan where there is a fixed payment and interest is calculated into the payment at a fixed rate. The payment basically never changes. Once we pay down our revolving accounts using the highest interest first system, I will be attacking the 0%-interest revolving accounts and the low APR simple loans (car, mortgage) on a smallest-first basis.

In your case, I would wholeheartedly agree with paying the smallest first to free up monthly income more quickly. With that income free, you may add it to the debt snowball or use it elsewhere as circumstances dictate. At some point, I would recommend either investing it or building an emergency fund so that you may continue to make payments if a job is lost.

By: Mary@SimplyForties

Mary@SimplyForties — Tue, 07 Oct 2008 21:27:40 +0000

Although I am following the highest interest rate first format, I understand Dave Ramsey’s, pay the lowest balance first, debt snowball’s psychological lift. It makes perfect sense to me. Having said that I was very surprised to hear Dave Ramsey recently tell a caller to pay his smaller debt first even though that debt was on a zero percent loan. That makes no sense to me at all!

By: Holland

Holland — Tue, 07 Oct 2008 21:11:47 +0000

We are following Dave’s plan – we have an emergency fund, no credit card debt and are using our debt snowball to pay down the smallest loan first. We have five student loans: $50K, $34K, $23K and $11K and $3K. At first I wanted to use our ‘snowball’ to pay down the loan with the highest APR (the APR’s range from 7.1% to 0%). If I was to focus on the largest APR we would be working on that $50K loan and it would take us 17 months to pay it off (paying about $3K a month). If within those 17 months something drastically bad happens to our income, my family would still have to make minimum payments on all five loans.
If we follow Dave’s plan and focus on the smallest debt we’ll have the first $3K loan paid off in 1 month. The next $11K loan paid off in 4 months. The next $23K loan paid off in 8 months. With Dave’s plan we’ll have three loans paid off in 14 months. So if something happens after that we’ll only have to worry about making minimum payments on the two remaining loans. I did the math – in our situation using the snowball to pay down the smallest loans works best and we will pay off all our debt at about the same time we would if working on the largest to smallest. However, I like knowing if one of us looses a job down the road we won’t have all five loans still hanging over our heads.

By: DavidK

DavidK — Tue, 07 Oct 2008 16:48:25 +0000

@Krista, you’ll notice that I said something to that effect in my post as well. I’ve done exactly that and paid off my highest rate cards first and then worked from the smallest to the largest between those debts in which the interest rates don’t differ enough to make a significant difference.
Unfortunately, the traditional debt snowball approach is what is needed in these modern times. People’s attention spans and gratification time limits have shortened dramatically. For those that cannot deal with the wait, the “Ramsey debt snowball” is best. I prefer the “fiscally responsible debt snowball” approach with high APR items going down first followed by lower ones.

@Dana and anyone else who looked at that link,
Scary isn’t it!! I’ve always paid over the minimums, but I plugged in the numbers just to see. It said my biggest credit card would be paid down in 385 months!! 32 YEARS?!?! I don’t think so. What people need to keep in mind as to why these take so long is that the minimum payment amount decreases as the debt grows smaller. You may say “yay, smaller payments” but it’s just the company’s way of continuing to collect interest money for the long term. If you make a payment of $X, make sure to keep paying that much even when your minimums go down. Doing that will decrease the payoff time to about 5-6 years. Try it in the calculator and see!