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PaymentHell_DreamstimeWe’ve all heard by now that paying the minimum on your credit card is one of the biggest financial traps. It could take decades to pay down a balance simply because you’re paying the credit card company’s suggested monthly minimum. That’s why Congress recently decided to force card issuers to include an explanation on each and every monthly statement of just how long it would take the cardholder to pay off the balance if he or she stuck to minimum payments. The Credit Card Accountability and Responsibility and Disclosure Act of 2009 also requires card companies to disclose what cardholders can pay to accelerate the payoff in order to be debt free in 3 years. (Gotta love that.)

Others are also spreading the disclosure love. Bills.com, for example, just this week unveiled a Minimum Payment Calculator to help consumers better understand the ramifications of just paying the  lowest possible amount each month. The tool gives the example of how a person with $6,500 in debt on a 19 percent interest rate credit card with a 4% minimum payment will owe a beginning payment of $260 per month. At that rate, it will take approximately 11.5 years and $10,573 in total principal and interest payments to become debt free.

Bills.com’s tool chimes in with existing calculators at Credit.com and Federal Reserve.gov.

[Article: What You Should Know About “Introductory” APRs]

If money is tight and you’re wondering how to manage debt on a variety of credit cards, here’s my advice:

1. Make sure you are at least paying the minimum on all your cards. Falling behind on payments is a definite way to lower your credit score, as payment history accounts for 35% of your FICO score. Set up automatic billing to ensure you never miss your mark.

2. Take the credit card with the highest interest rate and make an effort to pay double or triple the minimum monthly payment on that card, since it is your most expensive debt.

3. Got money left over? Move down to the card with the next highest interest rate, card #2, and pay extra there, as well.

4. Once you’ve paid off your highest rate card, make card #2 your priority and chop down that balance like time is money (because it is).

[Resource: Get your free Credit Report Card]

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