Did you put Christmas on a credit card? Sleigh it ain’t so!
If you’re like one of the many Americans who charged Christmas on a credit card, here’s how just making the minimum monthly payment can cost you, and how long it’ll take to pay off.
How much does Christmas cost?
We know that the holidays are more than just gifts, but you can’t ignore the real cost of it all.
Americans spend around $900 on Christmas each year. The typical credit card has an interest rate of 23.96% — yikes. With a rate that high, yule be feeling that in your budget.
If you didn’t save money for Christmas and instead charged it on a credit card, you’ll likely pay more than that if you can’t clear the balance off fast enough.
Minimum payments on a credit card cost you
Let’s say you spent $1,000 on the holidays and charged it on a single credit card with an interest rate of 24%. How much will that cost you if you just make minimum payments?
A lot — in fact, it will cost you over double, thanks to interest charges.
Most credit cards have a minimum payment of 1% to 3% of your balance. For simplicity’s sake, let’s say that the credit card you charged requires a 3% minimum payment.
With a 3% monthly minimum and a $1,000 starting balance, it will take you 125 months to pay it off, which is a little over 10 years. To add insult to injury, you would have paid about $1,332.19 in interest. In total, that means you would have actually paid $2,332.19 for Christmas.
And all of that assumes you don’t charge the card at all while you’re paying it down.
Why do minimum monthly payments cost so much?
It’s because your credit card’s minimum monthly payments adjust based on your balance and interest charges. Since your overall balance decreases over time, your minimum monthly payments adjust automatically. This streamrolls into small payments that barely put a dent in your balance.
Using our same example of a $1,000 balance and a 24% rate, your required monthly payment that starts at $30 will go down to $29.70 the next month, then to $29.40, and so on, until eventually, your last payment is $6.69.
Let’s craft a better payment plan for Christmas debt
The credit card’s minimum monthly payment is required, so you can’t pay less, but you can absolutely pay more. If you want to pay off the balance in fewer than 10 years — or even three years — you’ll have to make higher monthly payments than the assigned minimum.
Sticking with the same details of our previous example, let’s see some alternatives to paying off that debt faster and how much less interest you’ll be on the hook for.
| Monthly payment | Months to pay off $1,000 balance | Interest paid | Total money saved compared to making 3% minimum payments |
| $50 | 2 years and 2 months | $289.79 | $1,042.4 |
| $100 | 12 months | $126.84 | $1,205.35 |
| $200 | 6 months | $64.11 | $1,268.08 |
| $300 | 4 months | $45.21 | $1,286.98 |
| $400 | 3 months | $36.09 | $1,286.10 |
Even just paying $50 per month saves over $1,000 in interest charges compared to paying the monthly minimum. Sure, it’ll still take a few years to pay off, but it’s significantly less time (and way less interest) than just making minimum monthly payments.
The bottom line
If you’re struggling to pay down costly credit card debt and you’re juggling multiple balances, it might be time to look into debt consolidation options. These options typically involve balance transfer credit cards or using a personal loan to consolidate your debt.
No matter your situation, just remember that minimum monthly payments are just that — the minimum. And if you want to avoid credit card interest entirely to pay for the holidays, consider opening a savings account for holiday expenses and saving money throughout the year.
