How Much Will a $5,000 Credit Card Balance Really Cost with Minimum Payments?


Credit card offers a convenient way to make purchases and come with various perks, from extended warranties to rewards like points, miles, or cash back. 

However, if you need to be more careful with your credit card balances, you could find yourself facing hefty interest charges that can accumulate over time, turning a small debt into a significant financial burden.

One of the most critical mistakes you can make with credit cards is carrying a balance and only making the minimum payment. 

Let’s break down the costs associated with this scenario.

Imagine you have a $5,000 balance on your credit card with an average interest rate of 21.19% (as of August 2023). 

If you make only the minimum payment, typically around 2% of your card’s balance, it will take an astounding 878 months, equivalent to more than 73 years, to pay off your debt. 

During this excruciatingly long period, you would end up paying a staggering total of $30,797.65 in interest.

The reason for this financial nightmare is that your minimum payment is primarily allocated to cover the interest charges you owe to your credit card issuer. 

For instance, your first payment of $100 would give $87.50 toward interest and just $12.50 to reduce the outstanding balance.

Credit cards offer a convenient way to make purchases and come with various perks, from extended warranties to rewards like points, miles, or cash back.

With such a high-interest rate, you’d make minimal progress in paying down your debt while your credit card company benefits from your ongoing interest payments.

To avoid this never-ending cycle of debt, you have two primary options:

  1. Pay More than the Minimum: Increase your monthly payments beyond the minimum requirement to reduce your principal balance faster.

This may still be challenging due to the high-interest rate, but it is a step in the right direction.

  1. Refinance Your Debt: Consider refinancing your credit card debt with a personal loan or transferring your balance to a new credit card with a lower interest rate. 

A debt consolidation loan with a fixed repayment schedule can help you become debt-free within a few years, even with higher monthly payments. 

Balance transfer cards may offer a 0% interest rate on the transferred balance for a limited time, although an upfront balance transfer fee is standard.

Ideally, it would help if you explored both options to improve your financial situation. Refinancing can significantly reduce your interest rate while paying more than the minimum enables you to pay off your debt faster. 

The key is to take control of your credit card debt to avoid getting caught in a decades-long cycle of high-interest payments.

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