How to break the cycle of minimum credit card payments

2023-08-31  3 minute read

Linda Paul

Credit Counselling

Credit cards provide consumers with convenience, flexibility, purchasing power, and rewards. However, they can have a negative impact on your financial wellness when used without discipline or proper understanding.

making a minimum credit card payment

Credit card debt is the amount of money you owe for using your credit card. Your debt begins to accumulate when you cannot fully pay off your balance by the due date. It is tempting to pay only the minimum amount required to keep your account in good standing; however, it is a harmful financial habit.

Let’s say you have a credit card debt of $5,000 with an annual interest rate of 20 percent and a minimum monthly payment of 2 percent of your outstanding balance of $25. If you were to make only minimum payments, it would take about 27 years to pay off your total outstanding balance, and you would end up paying over $11,000 in interest alone.

It usually appears to be a technique to manage your payment, but it can end up trapping you in a vicious cycle of growing debt and prolonged financial stress.

How minimum payments affect your finances

Minimum payments are the lowest amount you can pay to keep your credit card in good standing. It may be a flat fee, a percentage of your balance, or a mix of both. While it provides temporary relief by reducing your required monthly payment, it can have serious long-term effects. Here's how:

High interest rates

Credit card interest rates can range from 15 percent to 25 percent or higher. When you make only the minimum payment, a large portion goes toward paying off the interest, while only a fraction pays off the principal debt. The situation can escalate if you’re making only minimum payments on more than one credit card.

Extended payment period

By paying only the minimum, you significantly lengthen the time it takes to pay off the debt. New purchases will build on the old balance, and you may find yourself stuck in a never-ending cycle of debt repayment.

Growing debt

The balance on your credit card grows as you continue to use it for new purchases. Making minimum payments hardly scratches the surface of your overall debt, and this accumulation can lead to financial burden.

Financial stress

Living under the weight of prolonged debt can negatively impact your mental and emotional wellbeing, as well as other aspects of your life.

Breaking the cycle of minimum payments

Paying off your credit card debt can be difficult, but not impossible. You can set yourself free from the cycle of minimum payments and the resulting financial burden by being disciplined and determined. Here are some tips that can help:

Pay more than the minimum

A small increase in your monthly payment can significantly reduce the time it takes to pay off your debt. Allocate more funds toward your credit card payments to speed up your repayment plan and shorten your repayment period.

Make a budget

Create a detailed budget that outlines your income, expenses, and debt obligations. This will help you identify areas where you can cut back and allocate more money toward debt repayment.

Consolidate your debt

Consider combining your high-interest credit card debt into a single loan. It’s easier when you have to focus on only one debt with lower interest.

Prioritize high-interest debt

If you have multiple credit cards, prioritize paying off the one with the highest interest rate. This approach reduces the amount of interest you'll pay over time.

Avoid incurring new charges

Avoid making new credit purchases while paying off your debt. This will prevent your balance from growing and hindering your repayment progress.

Get professional help

Speaking with an advisor can help you manage your debt and achieve your financial goals. Get a Free Confidential Consultation from your local MNP Trustee. They’ll conduct a thorough review of your financial situation and discuss available options with you.

Consultation icon