3. Avoid the dreaded minimum payment habit
One of the worst pitfalls that lead to succumbing to the perils of a credit card is when you only make minimum monthly payments. If you spent $2,000 on your credit card, your credit card statement is going to instruct you to pay only 2% of your outstanding balance as minimum payment, a payment which works out to $40.
Now, if that credit card charges you a 20% APR, a monthly interest charge of 1.6% is going to apply on the $1,960 that you will have pending, assuming that you just paid off the minimum payment. 1.6% of $1,960 is $32.
In other words, even though you think you have paid off $40 from your balance, you have essentially paid just $8 ($40 less $32) off your total balance.
If you keep up this trend, you will actually end up paying $8,960, over 30 years, to eventually pay off the $2,000 that you borrowed from your credit card company!
Quite shocking, isn’t it? This is why it is very important that you do your math right when planning your credit card repayment schedule.