The Vicious Cycle Of Minimum Repayments

The Vicious Cycle Of Minimum Repayments

Many of us think that if we are meeting the minimum repayments on our loans and credit cards we are in a great position to clear our debts. Wrong! This is one of the most dangerous ways that you can handle your finances. If you are only clearing the bare minimum, it will take you, on average, over 30 years to clear a total of £3000.

When it comes to matters regarding your finances, you need to start having a savvier approach. While you may think that you are beating the system by only paying the bare minimum, you are actually putting yourself in severe financial danger. What’s more, loan companies and credit card providers will target you as their prime candidate for loans.

Debt Consolidation 1

Think about this logically for a moment and let’s strip it back to basics. When it comes to your financial affairs, you need to be the one in the driving seat, not a company.

Back to Basics

When it comes to mortgages and loans, you rarely have flexibility in what you pay back. But, the credit card is different. As a rule, you are in the driving seat when it comes to repaying the costs. Let’s face it; the more you pay the quicker you are out of debt. This means that you can beat the over inflated APR and interest rates and actually save yourself a small fortune in the process.

Credit cards have a minimum repayment amount but that doesn’t mean you should solely pay this back. You should strive to make sure that you are paying more back. After all, the quicker that you repay your credit card loans, the less it will cost you in the long term. Unless, of course, you enjoy paying extortionate fees when it comes to loan repayments.

Credit card companies know that people love to pay the least amount possible. It makes them feel as if they are in control. But, this only means that you are in debt for a longer time period and ultimately are lining the pockets of the credit card company.

Taking Control and Getting Out of the Cycle of Debt

Typically many people will choose to make the minimum repayments on their credit cards. Usually, this is due to a lack of ignorance. They are simply unaware of the severe financial implications that this kind of debt can leave them with. Of course, credit card companies are unscrupulous and will never truly show their accurate figures and costs when it comes to lending money. Legally, they have to include a terms and conditions and a caveat, but these are rarely scanned by the public. While we all know that we should, none us do, so you’re not alone. Does this sound alarmingly familiar? If so, all you need to do is up your payments. Do an income and expenditure and see how much disposable cash you have left at the end of the month. Try to forgo a couple of luxury items and up your credit card payments. You will be debt free in no time at all. In essence, all your problems are solved.

Here comes the flipside of the coin. Some people simply cannot afford to pay more than the minimum. They have multiple credit cards through a plethora of different creditors. If this applies to you, well, things can be a little more complicated. Of course, it’s not impossible to be debt free. But, you will need to rethink your strategy. Luckily for you, you don’t have to do the hard work.

Strategically Planning Debt: Be Debt Free

It is essential that you budget and make cutbacks. While this may not sound pretty, it is important. So, make sure that you are omitting luxury goods and going back to basics for a while. This will free up some extra cash that you can put towards clearing your credit card debts.

Beating the Minimum Repayment Cycle

You need to make sure that you are assessing what you pay. First up, you need to contact your creditor or creditors and find out how much you actually on the card. Now, adjust your payments and make a fixed repayment based on your newly assessed income and expenditure. Rather than paying the minimum and allowing the payments to be reduced each month, you are actively making a fixed payment that is an increased amount. This will require determination and willpower so think carefully about your next move. 

There is, of course, another option…

Debt Consolidation

As you may be aware, debt consolidation is where your multiple debts too many creditors are combined to create one payment. These come with lower rates of interest and the term time is extended. So, while you may not get out of debt quickly, you won’t have to pay exuberant costs when it comes to interest. On the contrary, you pay back simply what you owe. What is more, you have a clear ‘end date’ for when the debt is set to be paid. A consolidation loan is an effective means of reducing your overall interest for the long term. This means that you don’t have to be trapped in the vicious cycle of minimum repayments for longer. You can have an effective means and a fixed end to your debt woes in sight. This is a huge advantage for many.

The Direct Debit Option

You can ensure that you set up a direct debit to help to pay your credit cards off. This has distinct advantages in that you treat it like another bill and you are not fined for missing the payment. But, you do need to be aware that there is a lure of minimum repayments just being met. Exercise your inner will power and make sure that you are not only paying this. Make sure that you are beating the interest rates by overpaying on your credit cards.

While you may not like paying by direct debit as you are paying a ‘fixed amount’ you can always top up your debts and make sure that they are paid off quickly and effectively when you have more cash. A one off payment is always honoured by the credit card company which results in you beating the vicious cycle and living a better life, financially.