Trying to understand minimum monthly payment.

[golo]

Hi to all,

I'm trying to understand this credit card from this bank. They say it's a promotional rate until the balance is paid off, I started with a balance of $5,100 3 years ago and now is $3,922. They say that my interest rate is 7.99% but they charge me $26 dollars on interest every month and my minimum payment is $64. So basically only $38 dollars go into the principal, how can that be 7.99%? $26 it's almost half of the minimum monthly payment. I don't understand, can somone share some knowledge with me? Thanks in advance.

[Anonymous]

7.99% is annual.

Take 3,922 x 7.99% and divide by 12.

[golo]

Thank you for the reply, so indeed it is 7.99 APR. Still is almost like half of the minimum payment, wow, can't imagine at 27 APR! Uff! you will never be able to pay it with the minimum payment. SMH. 

Thanks! 

[Anonymous]

Yeah, that's what they count on.

[Anonymous]

That interest charge per payment sounds about right.

If I may ask, why are you only making the minimum payment?

[Anonymous]

OP - If for the time being you are only able to make minimum monthly payments then I would STRONGLY suggest you looking into a balance transfer card. The best IMO is Chase Slate with 0% Balance Transfer fee and no interest for 15 months.

Discover, NFCU and others do offer them too but usually have a small fee associated.

Banks count on you not paying your balances off in full so that they can collect interest. You're lucky somehow you're only at 7.99% that's very very low!

Doing a Balance Transfer is not meant to be a long term solution it should be used so that you have time to develop a plan of how to pay off the debt in full and execute that plan. You can PM me if you need more information.

[Kforce]

Minimum is just that, the "minimum" that you can pay. it is not

the recommended payment.

Banks and CU's use different formulas to calculate the minimum payment.

however yours looks like $25+1% of the balance.

Paying this minimum will take about 10 years to payoff the loan.

Each statement the minimum will get smaller and if you only pay the minimum you

make a smaller payment each month (stretching out the loan)

If you were to continue paying this months payment of $64, It will be paid off in 7 years

If you could pay 200 /month, only 2 years

You should pay as much as you can each month, not the minimum.

[jamesdwi]

if you can only afford to pay the minimum payment of any card for more than a month, you need to take a serious look at your spending vs your income. 

paying only the minimum is a trap that will reallly lead to a downward spiral where you owe more and more, and not making any real progress of paying down your debt. 

[Anonymous]

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@golo wrote:

Thank you for the reply, so indeed it is 7.99 APR. Still is almost like half of the minimum payment, wow, can't imagine at 27 APR! Uff! you will never be able to pay it with the minimum payment. SMH. 

Thanks! 

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Well, with a 27% APR, your minimum payment will be higher.   So long as the minimum payment is higher than the interest charge, you WILL pay it off eventually, just takes many many years.   There is a disclosure on each statement showing this.

[Anonymous]

My biggest worry for those that carry balances and pay just the minimum payment for years is that the longer you draw out paying back a debt, the longer you are suseptible to a major adverse life event happening like job loss, family member loss, medical issue, etc. that could suddenly prevent you from being able to make that minimum payment.  At that point, you're in a very tough spot and more than likely your credit will be damaged.