Minimum Payment Trap Calculator
Credit card companies often design "minimum payments" to keep you in debt for decades. This tool reveals the hidden cost of interest and visualizes how long it truly takes to reach a zero balance. Input your details below to see if you are caught in the 20-year payoff trap.
Understanding the Minimum Payment Trap
Credit cards are one of the most common financial tools, but they harbor a mathematical secret known as the "Minimum Payment Trap." Banks calculate your minimum payment as a small percentage of your balance (often 2% to 3%). While this keeps your monthly commitment low, it barely covers the accruing interest. This results in a debt that takes decades to pay off, costing you thousands of dollars more than the original purchase.
How This Calculator Works
Our algorithm uses the standard Amortization Formula for credit cards. Every month, the calculator determines how much interest has accrued based on your APR. It then subtracts that interest from your payment. The remaining amount reduces your principal. If the payment is too low, the principal barely moves, creating a "long tail" of debt visible on our interactive graph.
Strategies to Escape Debt
- The Snowball Method: Pay off the smallest balances first to build psychological momentum.
- The Avalanche Method: Pay off the highest interest rates first to save the most money mathematically.
- Fixed Payments: Instead of paying the "minimum" which decreases over time, keep your payment amount fixed at the initial level.
Why 20 Years Matters
If your calculation results in a payoff time exceeding 20 years, you are essentially paying for your current lifestyle with your future retirement. Over 20 years, a $5,000 debt at 20% interest can easily balloon into $15,000 total paid. This calculator highlights that threshold in red to alert you of financial danger.
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