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Credit card debt can get out of hand when you make only the minimum required payment. In a new study exploring how people pay their credit card bills, PYMNTS Intelligence calls it being on a "credit treadmill." And it’s a pretty fitting description, given how easy it is to end up going nowhere fast. Let’s say your minimum payment on a $10,000 credit card balance with a 20% APR is $200 a month. You’d end up paying a total of $21,680 — including $11,680 in interest. But just as importantly, it would take you until 2034 (!) to pay off your balance. And that’s assuming you’re not adding to the balance in the meantime, which would only increase your interest and extend your timeline. How’s that for an exhausting run? The PYMNTS study, based on a November survey of 2,336 U.S. consumers, found that treadmillers not only struggle to keep up with their card payments, but are more likely to have other high-interest loans, too. According to the payments data company, 21% of treadmillers had at least one payday, home equity, pawn shop, rent-to-own or debt consolidation loan. That compares to 7% of "reward seekers" (who pay their entire monthly credit card balance) and 17% of "cash cushion users" (who pay more than the minimum but not the whole balance.) So what? It’s not always possible to pay all or most of your credit card balance, particularly if your job status, household income, or expenses have changed. But if it’s a matter of prioritizing where your money goes, consider other options for making a bigger dent every month. Here are some steps you can take:1. Revisit your budget: Take a fresh look at your monthly expenses to see where you can cut back.
2. Establish a plan to tackle your debt: There are several different established approaches to paying off credit card debt. And you can use an online calculator like this one to help motivate you.
3. Choose a less expensive loan: With interest rates on some credit cards topping 24%, it could make sense to refinance your debt with a lower-rate loan. (SoFi can help with that.)
Related Reading
• Minimum Credit Card Payments are Rising: How to Tackle Your Card Debt Now (CBS News)
• How Credit Card Issuers Calculate Minimum Payments (Nerdwallet)
• Payday Loan Alternative Options (Lantern by SoFi)
Image credit: Bernie Pesko/SoFi Photo Source: iStock
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