Credit card accounts are designed to increase debt. This happens in two ways. The first involves providing easy access to borrowing that can quickly grow to large amounts. The second comes in the form of the interest charged as a cost for that borrowing. Combined, they create the credit card trap that has millions of Americans stuck in a churning monthly cost that can easily get bigger, even with regular payments.
Nationwide, the cost of credit card debt continues to keep increasing. A combination of a changing economy, inflation, reduced income in wages earned and increasing costs in utilities and taxes have been hammering consumers. Many have liquidated savings to get by and now use credit cards to manage monthly needs. It’s all good business for credit card lenders; Visa alone made $4.2 billion in the second three months of 2023, or 7 percent more than the same time the year before.
Minimum Payments and Why They Don’t Work
Credit card companies are required by regulation to provide consumer awareness and to help their customers pay off debt. This is done through education as well as what is titled a “minimum payment.” The amount of the minimum payment is supposed to be enough to cover the monthly interest charge as well as some nominal amount of the actual debt so, if paid consistently without any further charges, eventually the debt owed will be paid in full. However, there is nothing that stops more debt being added until the spending limit on the card is reached. So, in practice, the debt just keeps getting bigger with typical consumer spending.
While making a minimum payment does satisfy the payment requirement for the month, it barely makes any kind of change to the debt owed.
An Alternative to Minimum Payments: Consolidation
The trap of the credit card comes in its ability to keep growing with more spending and variable interest charges. There are two ways to solve this: pay off the loan up front, or switch it to a fixed loan. A consolidation loan from companies like Symple Lending can help with the second option. Doing so, the credit card debt is switched for a lower interest fixed loan. This provides a fixed real payment that progressively pays off the debt, and it caps the interest from growing or adding more to the debt.
Adding in Additional Resources
With debt then under control, a borrower can then focus on additional efforts to add to the loan pay off, such as finding ways to earn more income as well as restrain other costs to reduce expenses monthly. Both can then produce savings to pay off a loan entirely.
Consolidation loans from Symple Lending and similar resources help a borrower get their head above water and able to think smart again about personal finance. That’s half the battle in dealing with debt effectively.