All too often people get themselves in deep trouble by making this monumental mistake. They either want something so bad that they only look to see if the monthly minimum fits within their budget, or their budgeting strategy is to fit as many monthly minimums in as possible before calling it quits. Meanwhile, they don’t have a clue or simply don’t care about how much they’re destroying their financial future. They’re only operating off the hear and now along with putting wants over needs. This is dangerous!
Taking this financial approach will have you teetering on the edge of crashing, burning, inferno, destruction, and every other word you can use to describe going broke. Yet so many of us operate this exact way and don’t see the problem with it one bit! We definitely don’t see the huge 300 mile train on the tracks barreling down on us if we just slip up one time…. Just one time…..
So due to the majority of the people who practice this approach not having a clue of the possible consequences, I’m going to list and describe 3 of them for you.
I know… Another list of advice to read…
Cheer up buttercup, this list could take you from financial ruins to financial freedom..
1) Mount Everest of Interest
That’s right, you’re literally paying the most interest possible for your items if you only pay the minimum. The interest you’re paying could be so high that you could very well end up paying triple the price you originally paid…. Seriously, triple…
Next time you get your monthly statement I want you to look for the category that describes the amount you’ll pay if you only make minimum payments. It’ll literally blow your mind! If you have a balance just in the mid hundreds, you’ll end up paying in the thousands when all said and done. It’ll also take years to pay that amount off at the minimum payment rate.
So the question is… Do you like paying triple, or do you like keeping that money in your pockets?
2) Late Fees!
I wish I could put like an explosion with a smiling devil face in the smoke following the exclamation mark. That’s how evil I view these unnecessary and completely avoidable expenses.
Anyway, this is exactly what you’re in store for by budgeting according to minimum payments. You can very well believe and bet your life on never getting a late fee, but trust and believe that it’s going to eventually happen if you keep using this strategy. You know it, I know it, and all these companies are banking on it.
Once they show up…. You’ll understand why I look at them as pure evil. What are you going to do when your late fees have added $500 per account to your debt because you can’t maintain the minimum payments?
3) Payment and Interest Increase
This can sneak up on you like a mosquito on a hot summer night in the rain forest. A vast majority of people who get interest free loans and only pay the minimum have no clue what’s in store. The last thing they’re expecting is all that interest over the past year hitting at once when they didn’t pay off that loan in time. Then when you add the increased minimum payment, all I can hear in my mind is the doom doom doom jingle from the movies!
You see, people don’t understand that if you don’t pay off the balance within that free time period that every single penny of interest they didn’t charge you is flooding right back into that loan. That in turn may very well double, if not triple, your minimum payment. They also don’t realize that the minimum payment they billed you at doesn’t always represent the amount required to pay off the balance within the no interest time frame. So now those dreaded fees come exploding back in on top of the higher payment and increased debt. Then the next question that comes to mind is…. Is it time to file for bankruptcy?
To Sum It All Up
Stop budgeting according to minimum payments! This is a recipe for disaster and will keep you broke for decades to come. Always take a look at your budget and see how much cushion the payment plus an additional amount added to it will leave you with. I personally recommend you look to see what the minimum with an extra 25% of that amount leave you with. If that amount is sufficient to still prosper and grow your wealth, then you can afford the payment. If not, then just say no! Having the additional money in your budget is a lot better than struggling to pay for that material object.