When it comes to debt, the question we’ve all (hopefully) asked ourselves at some point is “how much is too much?”
Watching debt balances grow, and thinking its ok – we can pay it off slowly and not have much to worry about. Family and I would go out to eat – use the credit card! We see some new fancy threads and think that’s awesome – use the credit card! Black Friday deals? Well, who can pass those up – use the credit card!
That mentality has caused the situation that I (and many others) am in currently. The idea that you’re can spend on a credit card and pay it off slowly is actually correct… slowly pay it off for the REST OF YOUR LIFE. We have for too long been on the “pay the minimum due” route instead of trying to get rid of the balances as quickly as possible. I would make the minimum payment, and check the balance online and see that my $32 payment was deducted from the balance immediately and thought great! Making progress…. That is until you check the balance again in a couple of days and there’s that little line item added to your statement that says something like “Finance Charges” or “Interest on Purchases” and that $32 payment suddenly turns out to be more like a $10 payment.
See the problem here? Chipping away at those balances by paying the bare minimum isn’t doing you any good whatsoever. While it may be true that you can pay it off that way you’re looking at a lifetime of those minimum payments. And then the problem arises of having a card with a hefty credit limit AND a hefty balance. The minimum payment will shoot up high enough to test your pain threshold! Now you’re making what in some cases could be an extra car payment just to keep your head above water with the credit card company, and what do you have to show for it? A few meals out? Was it worth it?
Why in the world would anyone want to make that minimum payment? The credit card companies love you for it – just means that you are their slave for years and years. They even taunt you with the info of how long you’re going to be their slave right there on your monthly statement. Ever look at the little box that breaks down how long it will take you to pay off a balance by just paying the minimum? Probably some very scary timeframes stated, right? How can we be so blind to the fact minimum payments are the WORST thing to do if you don’t have a plan to attack that balance soon?
For me I think it was not wanting to see much larger payments coming out of my bank account (I know, I know, extremely stupid). I felt ok making that small payment and thinking I would have some money left over at the end of the month. But as it turns out pretty much EVERY month – there isn’t that much left over, and here comes next month – lather, rinse, repeat.
So, back to the original question – how much is too much? To answer that question, you need to get serious about things and go collect your balances for all your accounts and list them in one nice list. Write it down, don’t just roughly tally things up in your head. Seeing it on paper can be a nice motivational tool. Makes things more “real”, doesn’t it?
My situation: $35K, all totaled across credit card, medical, and vehicle debt.
Your personal situation may be much better. It may be much worse. But the good news is, that by putting together a plan and STICKING TO IT, we can beat this monster.
Check back this weekend where I’ll break down the plan I intend to use and a comparison of how things would be versus continuing the same minimum payment path.