Only Making Your Minimum Monthly Payment

As a debt advisor, I am always surprised by the number of people that think the ability to make the required minimum monthly payment means they do not have a credit problem. While it’s true that your credit score may not be at risk because the payments are being maintained, your credit score is just one indication of financial wellness - and it may not even be the most important.

Several years ago it became mandatory for credit card companies to indicate on their monthly statements how long it would take a person to pay off their card in full if they only paid the minimum payment and never used their credit card again.

One recent example showed a total balance of $6,619 on a Visa card requiring around $50 per month to maintain the card. The statement said it would take 53 years to pay it in full - which calculates to total payments of $31,800.00. From this perspective, you can see why making only your minimum payments is a strong indicator of a credit problem. This issue can be even greater when a person is paying the minimum payments on more than one credit card.

The other major problem with only paying the minimum payment, is that getting stuck in a cycle of minimum payments can prevent your household from meeting their other goals or building a reserve of funds. If the household is making the credit card payment, but not putting away money for annual expenses or emergencies, the credit problem is sure to grow. Life is far from predictable and inevitably, something will come up, such as car repairs or some other emergency and there will be no funds available, putting you in an even bigger financial bind where the only option is to rely on more credit to finance emergency funding needs. This erases all of the progress you have made on paying down your debt and further commits your budget to that minimum monthly payment for an even longer period of time, perpetuating the cycle. This is another example that shows why making the minimum payment is an indication of a credit issue.

If you have been maintaining your minimum payments but not getting anywhere in reducing or eliminating your debt, you are not alone. In today’s economy, many Canadians are struggling from one debt payment to the next. Your local Licensed Insolvency Trustee will be able to assess your unique financial situation and help you work through your available options so you can decide which debt solutions is most manageable for you as you begin rebuilding towards a strong financial future!