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“First, credit card companies took advantage of stagnant wages to push credit cards way beyond what working families could sustain. Today, credit card companies are cutting back consumer credit and raising fees to save themselves from financial ruin. The economic crisis whose recovery requires more spending on goods and services (that provide jobs) is thus worsened by credit card companies whose actions reduce spending. Meanwhile, real wages are not rising to once again relieve workers of the need to borrow. So unemployment worsens, foreclosures grow, and the underlying causes of the economic crisis go unattended.” (Richard Wolff, professor emeritus of economics at the University of Massachusetts, Amherst)

I came across this quote this morning and thought that it sums up perfectly the American Consumer’s situation, how we got here, why we got here, and how we’re going to get out of this financial mess. Credit card debt has always been the root of the problem, along with fraudulent companies lending thousands to consumers who shouldn’t have qualified in the first place. Credit card debt has gotten us to where we are, and, unfortunately, it is the spending on ‘goods and services’ that will get us out of this mess, spending that consumers are still not able to do.

While credit card debt has helped to plummet us into this mess that we’re in, it has also taught us to be more responsible. We are learning how to budget our money, control our debt, and make more than the minimum payments towards our credit card debt. According to the Federal Reserve, consumers are paying down their credit card debt successfully for the 11^th month in a row! That’s amazing news. So, why is it so important to pay more than just the minimum payment on your credit card? Simple put; you will never get out of debt if you continue to only pay the minimum.

For an example let’s take a look at a credit card with a balance of $1,000 that has an APR of 18%. When you break the APR down to twelve monthly periods you end up with a 1.5% finance charge per month. For this example we will also use the assumption that the card calculates the minimum payment by 2.5% of the balance.

This means your minimum payment in the first month is $25, or $1,000 x 2.5%. With the card’s APR of 18% or 1.5% per month that means of that $25 payment only $10 is being applied to the balance while the other $15 is paying that month’s finance charge. During the next month your remaining balance is now $990 so your next minimum payment would be calculated as $24.75 ($990 x 2.5%). For this payment $14.85 covers that month’s finance charge while $9.90 is applied to the balance.

As you can see above, you have made almost $50 in payments yet only reduced your balance by $19.90. If you were to continue paying only the minimum and the features of this card remained unchanged it would take 153 months or almost 13 years to pay off a $1,000 initial balance. This would result in paying $1,115.41 on just interest alone, more than the amount of the original balance! (About.com)

What you need to do is come up with a plan of action to attack your credit card debt. Paying down the balance is your ultimate goal. You don’t have to pay off your entire credit card in a few months, but you should focus on paying down your overall debt.

If you have more than one credit card, it’s best to take a look at the one with the highest APR first. These are the ones you’ll want to attack before any others, simply because they are eating away at your pocket. With a high APR, you are literally throwing your money way every month. I have a credit card with a balance of about $10,000 on it. (Used it to pay for my wedding.) The interest rate bloats my payment by an incredible $77.00 each month! That’s almost $100.00 that I would literally be throwing away. It’s ridiculous.

So, take your highest APR cards and figure out what your minimum monthly payment on those is. All you have to do is work out what you can afford to pay. If it’s only $10 more a month, than that’s great! That $10 will add up over time and help to lower your balance quicker than simply paying the minimum. If this means that you have to take your lunch with you to work every day and put that $20 a week to the credit card, than it’s a sacrifice that you’ll just have to make. You’ll be happier for it in the long run when you are out from under your credit card debt.

Something important to remember when making those minimum monthly payments is that most of that money is not going to your credit card debt, it’s going directly to the credit card company. That alone should be some sound motivation for paying more than the minimum. On top of the yearly and sometimes monthly fees that your credit card company is charging you, if you are only making the minimum monthly payments, you are doing nothing more than paying the credit card company their interest fees.

A complimentary tactic that many experts suggest is to take a look at your lowest balances. If you have more than one credit card, aim to tackle the ones with the highest APR, and the ones with the lowest balance. The quicker you get those paid off, the quicker you can focus on the next ones. Remember; do not close it once it’s paid off. This might adversely affect your credit score. Simply hide it, or even cut it up, but do not close it.

Paying more than the minimum will greatly increase your chance of paying off your credit card debt, even if you only increase your payments by $10 to $50 a month. Make the necessary changes to make it happen, and the sacrifice will be well worth the payoff. Financial freedom is truly an amazing feeling.

Don’t forget, if you need help with your credit card debt check out our services or give us a call at 1-877-386-3603