Debt elimination can be a long game on minimum payments.
Almost anywhere you look on our site from the Debt Help section to the Tips, we’re promoting the idea of paying off credit card debt as quickly as possible. It helps you avoid bigger problems and save money on high interest rate charges. But what about when paying the debt off fast isn’t in the cards? What then?
When you’re at the other end of the spectrum with credit card debt and struggling to make your minimum payments, you could be in for quite a journey. The information below can help you understand why you may be better off looking for an alternative if you can’t pay off your debt fast with traditional means.
Time to pay off with minimum payments
If you’re really wondering how long it will take to pay off a credit card debt making only the minimum require payments on your bills, the answer is a lot longer than you should be.
Since credit cards have high interest rates and payments are set as a low percentage of your balance, it means that when your rates are high and your balances are, too, the minimum payments don’t really make a dent in paying off your debt. Instead, most of your payment goes to eliminating the interest accrued that month, so you only pay off a few dollars of your actual debt every time.
With this in mind, if you do the math, you find that even a small $1,000 debt on a credit card with a modest 15% APR would take almost a decade to pay off (9 years, 10 months) on a pretty standard 2% payment schedule. And during that time, you pay $851 in added interest charges.
So in answer to the question, you have quite a long time to pay off a credit card balance as long as you’re making the minimum required payments every month. As long as the interest gets paid (where the creditor makes their revenue) then the creditor is happy to give you more time to pay off the actual debt.
How long when you’re not making payments?
When you stop making payments on your credit card balance, it’s a different story. The creditor will generally only tolerate about six months of nonpayment before they write off the debt and give it to a collection agency. Your account is frozen and you can’t make any more charges and the collection begins their process to attempt to collect the balance owed.
Of course, if you miss one or two months of payments with the creditor before the account is written off and you try to catch up, the creditor will be more than happy to continue taking your payments and keeping your account open. The problem will come with penalty APR. This is a much higher interest rate (can be double your regular rate or more) that makes it even harder to catch up again. Penalty APR applies until you make six consecutive payments on time.
But if you haven’t made any payments in six months, the creditor will usually be done with you and pass your account into collections. At that point, it’s really a crap shoot as to how much time you have before anything negative really happens.
Fact: The statute of limitations on debt collection is 15 years.
Once a debt is written off (moved to charge-off status) the creditor or collection can seek a court judgement. This can force you to pay them (for example, by garnishing your wages) – and they can do this anytime they want on a defaulted debt.