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The trap of making minimum monthly payments

Credit card debt is one of the most common factors in the financial struggle of millions in America. This debt is not always the result of uncontrolled spending. In fact, you may find yourself pulling out the plastic to pay for groceries, medical bills or even utilities when the budget gets tight.

Paying the minimum amount on these credit card bills is not going to make you financially solvent. Instead, it may just make matters worse. Consumer advocates recommend paying off your credit card balance each time you use it, but that may not always be possible. If you have accumulated debt on multiple credit cards, you have options for paying it down quickly.

Minimum payments mean maximum debt

If you pay only the minimum payment on your monthly credit card bills, you have fallen into the trap credit card companies have set. You may notice that the lower your balance drops, the lower your minimum payment becomes. This keeps you paying high interest rates for a longer period of time.

In fact, just making minimum payments on a credit card balance of about $5,000 may end up costing you over $11,000 when you finally pay it off in about 20 years. This doesn't include fees and penalties if you happen to pay late or go over your limit.

Snowballs and avalanches

Instead of paying only the minimum balance, if you double or triple that payment each month, you can reduce the total amount you pay by thousands of dollars and pay it off in just a few years. Even adding a little extra to the minimum each month will save you money in the long run. This is called the snowball method.

If you have more than one credit card, you can use the same method to pay off the card with the highest interest. When you pay that card off, add its monthly payment to your payment on the card with the next highest interest, and so on until you have paid off all your credit cards. Financial advisors call this the avalanche method.

That's easy for you to say

Of course, the catch to paying down your credit card debt using the snowball or avalanche methods is that you need extra money to add to your minimum payments. If you are only making minimum payments, chances are it is because you don't have extra money lying around to pay off the balance. If this is the case, you may be struggling with more than just credit card debt.

Facing financial hardships can consume every area of your life. You may think there is little you can do but deal with the harassing phone calls from creditors until your ship comes in or you win the lottery. However, there are alternatives to dealing with overwhelming debt. If you want to learn more about the options that are suitable for your circumstances, consulting a debt relief attorney will more than likely provide you with the answers you need.

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