If you carry a credit card balance, your statement has a Minimum Payment Warning box. Besides the cost of paying only the minimum, it lists the monthly payment that clears the balance in three years. Set autopay to that amount and keep it fixed as the balance falls.
On a $5,000 balance at a 22% interest rate, the box would show that paying only the minimum takes about 19 years and costs about $13,100 in total, $8,100 of it interest. We assumed a minimum of 1% of the balance plus interest, or $25 if that’s more, so the first payment is about $142.
The three-year row would show about $191 a month and about $6,900 in total, $1,900 of it interest. The box prints the difference, about $6,200, as your savings.
The three-year payment is $49 a month more than the first minimum, and it cuts 16 years off the payoff. A minimum set as a percentage of the balance shrinks as you pay, so each payment pays down less than the one before. A fixed payment works the other way. As the interest charge falls, more of each payment goes to the balance.
Federal rules put the box on the front of your statement’s first page, near the minimum payment due. Its estimates assume you add no new charges. If there’s no three-year row, your minimum already clears the balance within about three years.
In your card’s autopay settings, choose a fixed amount and enter the three-year payment. Then don’t lower it. Next month’s box will show a smaller three-year figure, because it starts a fresh three years from your lower balance. Follow that number down, and in the $5,000 example you’d still owe about $2,400 after three years.
Do check each statement, though. If new charges or a rate increase push the three-year figure above your payment, raise yours to match. With more than one card, add up the three-year payments, pay every minimum, and send the rest to the card with the highest rate, the debt avalanche order.
Treat the three-year payment as a floor. Every dollar above it ends the debt sooner.
Editorial & Advertiser Disclosure: The editorial content on this page is not provided, commissioned, reviewed, approved, or otherwise endorsed by any advertiser. Opinions expressed here are ours alone, not those of any advertiser. The offers that appear on this site are from companies that compensate us. That compensation may influence which products we cover and where and how they appear on a page – including the order in which they appear – but it does not influence our evaluations, ratings, or opinions. We do not include every company or offer available in the marketplace.
Related:
