Minimum Effort: Making Minimum Payments Won't Help Debt Issues

Credit experts will argue one of the keys to keeping your credit score afloat is always to make your payments on time, even if that means minimum payments only. While that mindset ultimately is correct, you can’t assume that those barely-there payments are going to lead to getting out of debt anytime soon. Now, if the argument is whether you should pay your bill on time or not, the answer is quite simple. You always want to pay on time, even if it’s the bare bones. But for those who struggle with making the minimum payment in that you’re tired of not getting ahead or having that minimum barely cover the interest, you need to develop a new game plan moving forward to tackle that debt once and for all. If you have multiple obligations or sources of debt, you want to think about the interest rate first, and not so much the balance. The best plan of attack would be to find the account with the highest interest rate and make as much of a payment on that one as possible, paying that one down first. Some will say you should take that approach with the lowest balance first, pay that off and then move on to the next highest balance. But if you stop to think about it, you have to look at the bigger picture and that your interest is killing any chance you have of doing anything except treading water. That minimum payment won’t do much, and if you have three credit cards for instance that you pay $50 per month on and the average interest month to month is $37 for example, you’re only paying a net of $13 per card. Instead, take that $150 you’re spending on three and put a $100 toward one with the highest rate and $25 to the others. You need to start thinking not so much about dividing and conquering but rather setting your sights on that one account that is going to disappear a lot faster when you take into account that you’re spending above and beyond the minimum because it has an interest rate that is double what the others are. Having trouble making any payments at all should lead you to a credit counseling service, but if you have the means, make more than the minimum on those accounts or lines of credit that are creeping along and costing you more but just barely making a payment.