Lesko: Minimum Payment, Maximum Pain
By Fox 40 Staff.
Jason: If you pay just the minimum on your credit card balances each month, Greg Lesko of Lesko Financial says you might want to rethink that. Greg...
Greg: Thanks Jason. Many people pay just the minimum monthly balance on their credit cards and think they're managing their money well. Of course, making payments each month is better than falling behind.
But you should review your monthly statements and familiarize yourself with how much interest you're being charged--and what interest and fees can cost you over the long run.
Jason: Are people ignoring these details?
Greg: Not deliberately, perhaps, but maybe just not paying enough attention.
For example, one website gave a typical example of a credit card purchase and asked people to tell them how much interest they'd end up paying over a period of time. Only a tiny fraction got it right.
What's worse is that one in three actually thought that paying off the minimum monthly balance meant they'd be charged no interest at all.
Jason: What's the remedy?
Greg: First, understand how interest accumulates--we call it "compounding." the longer you carry a balance, the more you'll be paying over time.
If you owe $2000 on a credit card with an annual rate of 18%, and pay just the minimum each month, it will take you over 30 years to pay off the balance and cost you many times the price of the original purchases.
But compounding can work in your favor, too. Use an online calculator to see how much a decent return on your investments will grow your money over time...and you might just decide to invest that same amount instead of spending it.