Lower payments are not always in your best interest. For many people reducing monthly payments helps with cashflow, but cashflow alone should not be the determining factor in deciding to opt for lower payments.
Decreasing payments, regardless of interest rates, means remaining in debt for longer terms, and that means paying more interest and related fees. Bank issued credit cards, for instance, require minimum monthly payments of roughly 2% of the outstanding balance and those minimal payments can result in the debt being extended over more than 400 years. That is not a typo – look at your credit card statements to see how many years your minimum monthly payments have calculated over.
If you had a credit card with a $10,000 balance, interest at 17%, and made monthly payments at 2% of the outstanding balance, after 40 years of payments, you would have paid $21,942 in interest and still have a debt. On the other hand, if you paid back $500 per month, you would have the debt paid off in less than 2 years and would have only paid about $2,000 in interest charges.
Is it time to reduce your debt to lower payments, that will actually help you get out of debt? Call us for more details 519-646-2222