About 50% of all Americans have some kind of credit card debt, totaling in the 10’s of billions of dollars. With average interest rates at about 16% with some being above 29%, it is no wonder millions of Americans find it difficult to pay down their credit card debt.
The interest rate of a credit card is quite important as that determines how much you owe on the debt and eventually, how long it will take to pay. But the most important aspect in how long credit card debt takes to pay off is simply the amount you pay at the end of each month. Credit card companies have a monthly minimum payment requirement that allows you to amass large amount of debt while paying high interest rates for as long as possible.
Typically, the monthly minimum is $25 or in some cases, a small percentage and can range from 1%-3% of the balance and is the slowest way to pay off credit card debt. For example, let’s say you have $10,000 in credit card debt with an annual interest rate of 17% on the low end and every month, you pay the minimum balance of just $165.If you only pay the minimum balance of $165 per month for the duration of the debt, it would take you almost 12 years to pay off all of the debt. By the end, you would have paid just under $13,000 in interest alone on top of the original $10,000 you borrowed. If you double the payment to just $330, you could pay off all of the debt on the credit card in just 3 years and 4 months, paying a total of only $3,157 in interest.
Many people assume that paying the minimum requirement is enough to keep them ahead of their debt, but they do not take into account how long it will stretch the payment plan and how much interest they will incur over the course of the payment plan, as the example above shows. Paying as much as you can per month towards your credit card bill can vastly improve the debt situation by not only paying the debt off sooner, paying less in overall interest and fees, but by also helping strengthen your credit score.