When we talk about minimum payments, we’re not just talking about credit cards, which is what “minimum payments” are usually associated with. Many other types of loans, such as “payment optional” mortgages, give consumers a lot of room to minimize their monthly payments, as long as they don’t go below a certain dollar amount.
The problem with this is that compound interest continues to march forward on your balance, especially when you pay just the minimum. In fact, your balance can actually grow if your minimum payment was less than the interest that was actually added to our account for that month.
Unfortunately, making minimum payments is human nature. To get out of debt, you’re going to have to go against the very fabric of who you are. By nature you instinctually avoid pain, and paying down a debt when there are other fun things that you can use your money for is painful! When given the choice between using all your disposable income to pay off a debt, and using some or most of it to enjoy life, you’re going to choose the latter. In fact, over the years, I’ve come to observe that when most people open their credit card statements, their total balance is not the first number they look at. People actually tend to check their minimum payment due before the balance!