How Does a Credit Card Work?

Paying the minimum payment on a  credit card  is one of the main reasons why so many people are currently in financial trouble. If you make purchases totaling $1,000, the minimum payment may only be $20 with only $10 going to pay off the principle and the rest is interest. Many people think that a $20 payment per month is nothing so they charge another $1,000 since it is only $20 per month more. Eventually they have total credit card debt of $10,000 and are making minimum payments of $200. Then they miss a payment and the bank increases their interest rate causing the minimum payment to increase to $300 which causes them to miss another payment which causes the bank to raise their interest rate and minimum payment further.

Now they are paying a $400 per month minimum payment but most of it is going to pay the interest and it would take up to 20 years to pay off the credit card. Eventually they miss too many payments and they are no longer allowed to charge on their credit card and their credit score goes completely into the tank causing their car insurance premiums to increase, new car loan interest rates to skyrocket or not be available, and no one will give them credit. 

Eventually they fall behind on all their payments and file for bankruptcy not allowing them to get credit for many years.

Some people charge much more on their credit cards of $100,000 or more. They end up with minimum payments of $4,000-$8,000 per month on a salary that is less than their minimum credit card payment. Eventually they may lose their house, their cars, and their job because of the debt and stress and end up living on the street.

Some credit card companies require that you pay in full each month and some will let you make monthly payments.
Just remember, if you pay in monthly payments,it can take forever to get it paid off. Always try to send in more than the minimum payment if you can. Credit card companies get filthy rich off those of us who only pay the minimum pymt, be cautious !

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