DePaul Financial Fitness : Shop Smarter: Avoid the Minimum Payment Trap

Workshops & Advising Calculators Worksheets Links

Shop Smarter

Avoid the Minimum Payment Trap

Credit makes it tremendously easy to go into debt. Not paying your bills or only paying the minimum amount due become a serious problem and can substantially increase the time you are in debt.

You should only charge an amount that you can afford to pay in full when the bill arrives. If you are unable to do so, you will pay interest on your purchases which can add months or even years to the time it takes you to repay your debt. Do you really want to be paying for that late night pizza you charged this weekend for the next few months or even years?!

Paying in full can save you considerable money. If you start with a $500 credit card balance and pay just the 2.5% minimum payment every month, you would pay a total of $865.40 for your debt, including $365.40 in interest, and you would have to make payments for 7 years!

Debt Balance	Interest Rate	Minimum monthly payment (2.5%)	Years in Debt	Total Interest	Actual Cost
$500	18%	$12.50	7 years	$365.40	$865.40
$1000	18%	$25	13 years	$1115.41	$2115.41
$2000	18%	$50	18.5 years	$2615.43	$4615.43
$3000	18%	$75	22 years	$4115.44	$7115.44

Debt Balance	Interest Rate	Payment Amount	Years in Debt	Interest Paid	Actual Cost
$500	18%	$25	2 years	$98.91	$598.91
$1000	18%	$50	2 years	$197.83	$1197.83
$2000	18%	$100	2 years	$395.65	$2395.65
$3000	18%	$150	2 years	$593.48	$3593.48

However, if you doubled your minimum payment every month, your actual cost is $598.91 and you would be in debt for only 2 years. That's a savings of $266.49!

40% of students are likely to buy a pair of jeans (or something similar) they really want even if they do not have the money to pay for it.
Total consumer debt topped $2 trillion for the first time in 2003.
Research has shown that as little as 10 hours of personal financial education positively affects students spending and savings habits.
40% of Americans say they live beyond their means.
50.8% of college-age adults agree with this statement: "I have experienced repeated, unsuccessful attempts to control, cut back or stop excessive money use."
Teens surveyed by Teenage Research Unlimited reported spending 98% of their money, rather than saving it.
One out of three households reported using credit cards to cover basic living expenses, on average, for four of the past 12 months.
20% of graduating college students have $10,000 or more in non-school related credit card debt.
The average household with debt carries approximately $10,000 to $12,000 in total revolving debt and has 9 credit cards.
The US has recently seen an over 50% increase in bankruptcies among people under age 25 (fastest growing age range for bankruptcies)
Half of all Americans are living paycheck to paycheck.