YOUR MONEY

CREDIT, COLLEGE, TAXES AND REAL ESTATE

Home > Your Money > Credit & Money Management > Column

COMMENT

BUZZ UP

DIGG THIS

ASK KIM: RECENT COLUMNS

PLUS: OTHER COLUMNS

FEATURED SLIDE SHOW

Financial Advice from the
Founding Fathers

Their suggestions and ours might just help you forge your financial independence.

Top 5: Your Money Tools

TODAY'S MOST E-MAILED STORIES

PLUS: See Our Slide Shows

KIPLINGER'S MONEY POLL

Would you buy a GM car now that the company is going through bankruptcy?

ASK KIM

Paying the Minimum Will Cost You

By Kimberly Lankford

August 28, 2006

How long will it take to pay off my credit card debt if I make the minimum monthly payment?

It takes a very, very long time to pay off your credit card debt if you only pay the minimum. Most card issuers set your minimum payment at 4% of your debt -- so a $5,000 credit card balance with an 18% interest rate would start out with a $200 monthly payment. But if you only make that minimum payment, it will take 12.5 years to pay off your credit card debt, during which time you'll pay the card company a total of $2,916 in interest -- more than half the cost of the whole loan in interest payments. And that's assuming you don't make any new charges on the card! Credit card interest is wasted money that you could have used instead to help reach your financial goals.

The best advice is to ignore the card's minimum payment and pay as much as you can every month. Paying down a credit card with an 18% interest rate should be one of your very first financial priorities -- the rate is probably a lot higher than any other loans you have and you're unlikely to find other investments to beat that rate (other than your employer's 401(k) match). Switching to a lower-rate card can make a big difference, too.

If you lower the rate to 6% and continue to make the minimum payment, it will take more than nine years to pay off the balance, and you'll pay a total of $696 in interest. But if you increase your monthly payments to $500, you'll pay off the balance in 11 months and pay a total of $142 in interest.

You can run the numbers for your own situation with our True Cost of Paying the Minimum calculator.

For advice on getting out of debt, see Lower Your Debt Right Now.

ASK KIM:
Send Kim your questions. She can't answer every one, but she'll answer as many as she can. If your question isn't published within a few weeks, scan the archives to see if Kim has covered the issue before, or start a discussion in the Kiplinger.com Community.