Debt can get worse, even when making payments

On Behalf of | Mar 12, 2024 | Bankruptcy

Credit cards often come with a minimum payment. The user is not required to pay off the whole balance every month. The minimum payment tells them the smallest amount that they need to pay to be allowed to keep their account.

But some people make the mistake of believing that all they have to do is make this minimum payment every month and then everything will be fine. The reality is that your debt can actually get worse, even when you are consistently making the minimum payments on time. They are simply not enough in many cases.

The interest rate

The problem is that your credit card has an interest rate. You have to pay this much interest on the remaining balance. It may be more than the minimum payment.

For example, say that you have a credit card with a balance of $1,000, and it has an interest rate of 16%. Your minimum payment, meanwhile, is just $25.

If you pay that $25, you are left with a remaining balance of $975. The 16% interest rate would then be applied to this $975, creating a total of $156 owed. When added to your remaining balance, this would mean that you now owed $1,131, even though you made the minimum payment of $25. Your total debt still went up by $131 for the month.

How can you get out of this trap?

Many people often feel trapped by their credit cards because they can’t pay the total amount that is owed and the interest means their debt keeps climbing. If you find yourself in this situation, then it’s important to consider bankruptcy and all the other legal options at your disposal.