Dec 2 (Reuters) – ‘Tis the season to charge it.
Pay a little now, finance the rest with credit cards. If you’re like a lot of people, that might sound like a good deal for holiday shopping. “We spend more in this five-week week period than in the collective 47 weeks that lead up to it,” says credit expert John Ulzheimer.
Yet your option to pay the full amount that is due for the billing period — the smart thing to do — may not be the most prominent one displayed on your credit card statement. And when you go online to pay your bill, the minimum payment box might already be checked.
The Hidden Danger of Minimum Credit Card Payments
Holiday shopping often leads people to spend more than planned. Many shoppers choose to “pay a little now and finance the rest,” believing it’s a convenient option. Credit expert John Ulzheimer notes that people spend more during the five-week holiday period than in the entire rest of the year.
But this convenience comes with a trap: your credit card bill often highlights the minimum payment, not the full amount you owe. And when you pay online, the minimum box may already be selected. This can push even the smartest consumers toward paying less than they should.
Why Minimum Payments Are So Tempting
Linda Salisbury, a professor at Boston College, studied how people behave when paying credit card bills. She found that the simple presence of a “minimum payment” option encourages people to pay less—even when they can afford more.
This habit leads to unnecessary interest costs. People who could pay their full balance end up paying extra interest simply because the minimum payment feels easier.
How Minimum Payments Keep You in Debt Longer
The long-term impact of paying only the minimum is huge.
Example:
If you owe $10,000 on a credit card with a 10% interest rate and the minimum payment is 4% of the balance:
Paying the minimum ($400 to start) → 10 years to clear the debt
Paying $800 a month → 14 months, saving almost $2,000 in interest
Store credit cards are even worse. They often charge 20% or higher, making minimum payments even more costly.
The Psychological Trap Consumers Fall Into
New York City bankruptcy lawyer Daniel Gershburg sees this pattern often. Many clients believe that making the minimum payment means they are managing their debt. In reality, they are sinking deeper because interest keeps building.
He explains that the small required payment creates a false sense of financial security, encouraging people to continue spending.
Why Disclosure Rules Haven’t Solved the Problem
The federal CARD Act of 2010 requires credit card statements to show:
How long it will take to pay off your balance if you pay the minimum
How much you need to pay each month to clear your debt in three years
But Salisbury’s research found that these warnings do little to change behavior. Even though the numbers are alarming, most people still stick to the minimum.
The Consumer Financial Protection Bureau reports:
70% of consumers notice the new disclosures
Less than one-third change their payment habits
Online repayment calculators can help you see the real cost of debt. As Bills.com president Ethan Ewing says, “The numbers can be scary. Minimum payments can lock you into a lifetime of debt.”
One Bright Spot: Balance Transfer Offers
There is some good news for consumers with strong credit. Credit card companies are offering new introductory balance transfer deals with low or even 0% interest for a year or longer. Citi, for example, offers 21 months of 0% interest.
Some offers are free of balance transfer fees, while others charge up to 3% of the transferred amount. For a $20,000 transfer, that fee would be $600.
