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🇹🇼 Taiwan /Economy & Trade

Worst credit card habit revealed: Over 40% of Americans make this mistake

From Liberty Times · () Chinese

Translated from Chinese and summarized by DistantNews. Read the original for the full story.

At a glance

News Sources not specified Context piece
  • Paying only the minimum amount due on credit cards is identified as a significant habit that can quickly lead to debt.
  • A survey found that over 40% of U.S. credit cardholders regularly make only the minimum payment, a practice that hinders substantial debt reduction.
  • This habit is particularly prevalent among Gen Z cardholders, with 58% reporting they frequently pay only the minimum, potentially leading to decades of repayment and substantial interest costs.

A common practice among credit card users, frequently paying only the minimum amount due, is identified as one of the quickest routes into a debt spiral. A survey by LendingTree, which polled over 1,500 U.S. credit cardholders, revealed that more than 40% regularly make only the minimum payment on at least one card.

This habit is even more pronounced among younger consumers, with 58% of Gen Z cardholders admitting to this practice. Financial experts describe making only the minimum payment not as a debt-reduction strategy, but rather as a method to maintain an account's good standing while doing little to decrease the principal balance.

The minimum payment is not a debt reduction strategy, it is a debt maintenance strategy.

— Corinna RoseA certified financial planner explains the nature of minimum credit card payments.

For those carrying credit card debt, the implications are stark. The average U.S. cardholder with debt owes $7,756 at an average annual interest rate of 20.94%. Under these conditions, consistently paying only the minimum could mean it takes nearly 27 years to pay off the debt, accumulating almost $13,000 in interest alone, according to Bankrate's credit card calculator.

A lot of people misunderstand and think that by paying the minimum payment, they are making meaningful progress in their financial lives. In reality, they are often just treading water, and the interest is working against them in a big way.

— Corinna RoseA certified financial planner clarifies the misconception about making minimum payments on credit cards.

Financial planners emphasize that many people mistakenly believe paying the minimum constitutes meaningful progress. In reality, it often means treading water financially while interest charges mount. Experts advise that credit card interest is typically calculated daily, so making payments earlier in the billing cycle can help reduce overall interest costs.

The ideal scenario, according to financial advisors, is to avoid carrying balances month-to-month. The ultimate goal should be to use credit cards as a payment tool, not as a means to spend money one does not currently possess. Consistently accumulating debt month after month serves as a clear warning sign, prompting a review of spending habits, the creation of a realistic budget, or even a temporary cessation of credit card use.

Don't pay for yesterday's consumption with tomorrow's income.

— Corinna RoseA certified financial planner shares a principle for managing credit card spending.
About this summary

Originally published by Liberty Times in Chinese. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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