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The Lurking Dangers of Minimum Payments

By: Larry Goldberg

If you’ve made one too many purchases with your student credit card, you may have fallen into the trap of making only the minimum payment each month. The word “trap,” truly applies here, too, because should you choose to just make minimum payments, you may be looking at paying off that new stereo you bought for your car after your kids graduate from college!


What Is My Minimum Payment?

Until about 2006, most credit card companies charged a minimum payment of 2% of the total balance of your credit card. That, however, meant that a customer who owed just $2,000 would need 30 years to repay it to a credit card company, and in the process of that repayment cycle, would pay nearly five thousand dollars in interest. The government deemed those unacceptable numbers and upped the minimum payments for most cards to four to six percent of the total balance of the card.


Understanding what your minimum payment might be before you actually make those charges on your credit card account is essential to your financial well being. If you don’t understand how to figure your balance before you buy a new couch for your dorm room, call the credit card company. They’ll help you figure out the minimum payment for your individual account. Better yet, go online. There are thousands of credit card calculators out there that will not only tell you what the minimum payment will be for your balance, but also how long it will take you to pay that balance off.


I’m In Over My Head. What Now?

If you ever do find yourself in over your head because you can’t even make the minimum payments on your student credit card purchases, there are a few things you can do.


  • Understand your spending habits. If you spend fifty or sixty bucks each week just eating out with your buddies, that money could be going toward your debts. Try keeping a spending journal for a week. It may help you to understand where all of your money is headed.
  • Talk to a credit card counselor. There are thousands of not for profit organizations out there willing to help you get out of debt and start the path to a new financial lifestyle. And hey, let’s face it, it’s really a good idea to do that now while you’re in school than when you hit the real world. A credit counselor can help you negotiate with your credit card companies for a payment plan that you can actually live with.
  • File for bankruptcy. While this should certainly be considered a last resort option, it’s something you may have to consider at some point. If you do plan to file for bankruptcy, talk with your parents and a credit counselor. You won’t have to hire a lawyer to help, but it’s certainly a good idea.


If you’ve got student credit card bills, grab a summer job to get them paid off. Plodding along at minimum payment for any period of time just isn’t the best idea for your credit future.



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