This mistake can make your credit card debt worse. Image source: Getty Images.

Although there are differing opinions on what qualifies as “good debt” and “bad debt”, there is one thing almost everyone agrees on: credit card debt is a bad debt. Interest rates make it expensive to maintain a balance on your credit cardand since consumers can continue to use their cards even when in debt, they often sink into a deeper and deeper hole.

If you currently have credit card debt, your repayment strategy makes a significant difference to the overall cost of that debt. And this is an area where many consumers make a big mistake because they only pay the minimum amount when their bill is due.

How many people make minimum credit card payments?

In our research on psychological cost of debt, we asked consumers with credit card debt about the amount of their monthly payments. Here’s what we found (percentages rounded to the nearest whole number):

• 35% only made the minimum payment
• 8% made less than the minimum payout
• 58% made more than the minimum payment

That’s a staggering 43% of consumers who only paid the minimum or less.

Paying less than the minimum is the worst thing you can do, as this is considered a missed payment. Your credit card company can then charge you a late fee, and once your payment is 30 days or more past due, it can negatively impact your credit score.

Although you avoid both of these consequences by making your minimum payment, there is also a serious problem with this option.

The cost of paying the minimum

The reason paying the minimum on your credit card is so bad for you financially is that it takes a lot longer to pay off your balance, which also means you end up paying a lot more interest. It is easier to demonstrate this with an example.

The table below lists how long it will take you to pay off different credit card balances and how much interest you’ll pay if you only make minimum payments. Note that these calculations assume a credit card with an APR of 18%, which is close to the national average, and a minimum payment of 2% of the balance.

Data source: author’s calculations

With each example, you’ll end up paying more than double your original balance in interest and spend over a decade in credit card debt.

This also assumes that you no longer incur charges with your credit card. If you do, the time it takes to pay off your debt and the total interest paid will both increase.

How to get out of credit card debt

When you’re in credit card debt, the most important thing to do is pay more than the minimum. In most cases, you should spend all the extra money you have each month on your credit card payments.

What if minimum payments were all you could handle? The hard truth is that you will need to find more money to make progress on your debt. This may mean finding a way to get side income, cutting back on any non-essential expenses you have, or selling off anything you don’t need.

Once you’re paying more than the minimum on your credit card debt, you can consider different strategies that might help you pay off your debt faster.

A balance transfer

With a good credit rating, you may qualify for a balance transfer card with a 0% introductory APR. You can then transfer your credit card balance to this card and avoid any interest charges until the end of the introductory period.

Although many balance transfer cards include a fee (often 3%) for each transfer you make, they can still save you a lot of money on interest, especially since many have introductory periods of over a year. Just keep in mind that the APR will increase a lot after the introductory period ends.

A debt consolidation loan

Another option available to those with good credit is a Personal loan that you use to pay off all your credit card debt. Since personal loans generally have much lower interest rates than credit cards, you can save money this way. You’ll also have a fixed loan term with fixed payment amounts, which could help you stay on track to pay off your debt.

Pay off multiple credit cards

If you have debt spread across multiple credit cards and balance transfers and debt consolidation loans have run out, there are two popular methods for paying off that debt: avalanche and snowball methods.

With each method, you focus all of your reserve funds on one credit card balance while making minimum payments on the rest of your cards. After paying off that card, you focus on another card, pay it off, and continue this process until your credit card debt is gone.

Here is the difference:

• Avalanche method – You focus on the credit card with the highest APR.
• snowball method — You focus on the credit card with the lowest balance.

The avalanche method saves you the most money, but consumers tend to do better with the snowball method because of the incentive they get from paying off credit cards faster.

Both methods can work, so it depends on which option is best for you.

Reduce credit card debt

If there’s one thing to take away from all of this, it’s that you’re playing with fire when making minimum payments on your credit cards. You may need to work more or change your lifestyle to increase your credit card payments, but it’s worth it to make progress on your debt.