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What happens if I just pay the minimum payments on debt?

One of the difficult parts of having credit card debt is that interest rates can be extremely high. Many companies provide unclear statements that rack up debt for individuals if they only pay the minimum payments on their debt. Credit card debt for Massachusetts residents can rack up quickly and spiral out of control.

According to information from the Federal Trade Commission, paying the minimum payments on a credit card can lead to more financial trouble. The agency cites an example of a woman buying a $300 air conditioner who elects to pay a minimum payment of $15 a month. The agency states that based on an APR charge of 23 percent that was added to the woman's balance every month, it takes someone more than two years to pay off a $300 debt. The total paid for the debt is $382, or more than a 27 percent increase.

The reason that a majority of credit card companies make large profits is because of charging high interest rates on those who pay the minimum payment. The FTC example illustrates that the company is making a significant amount of money on someone who makes the minimum payment on debt. One option for those who are struggling and can only make minimum payments is bankruptcy. This allows the debtor to get rid of some burdensome consumer debt.

Finding help is important if someone is struggling. Paying the minimum payment is a poor solution, especially when the original debt amount is large. It's important to find a way to solve your debt problems. Bankruptcy can be one option to consider.

Source: FTC.gov, "Minimum Payments on Credit Cards," Accessed on Nov. 1, 2014

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