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If you have a credit card, you should, theoretically, know that missing a payment or paying less than your total balance each month can cause a spiral of debt. The interest rate on credit cards is very high compared to other financial products and is aggravated by the fact that you do not pay your balance in full each month.
And credit cards make it easier to fall into this spiral of debt. To do this, your issuer will display the "minimum balance due" each month prominently on your bill / online account. If you do not know better and you pay the minimum, you can find yourself paying a lot more money in the long run.
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CNBC explains how to pay just the minimum each month can be added quickly:
The average household with a credit card debt owes about $ 5,700, while the under 35 household owes $ 5,808. If you paid only the minimum of $ 5,000 debt at the current average interest rate [which is over 17 percent]you have a debt of more than 18 years and pay about $ 11,400 in interest.
As Lifehacker has written previously, the minimum payment from certain issuers is only one percent of your total balance. And while they say it gives you more flexibility, it's really a way for them to take advantage of you. (That said, if you are in a period of financial stress, a minimum balance allows you to keep your credit score / keep the creditors from your back until you get up.)
That's why it's important to think of a credit card as a tool and use it as a means to achieve one's goals. It's easy to spend more than you can afford, but you should only charge the maximum you can afford in a month. Credit card companies rely on the fact that you will not do it.
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