The Minimum Payment Trap Part 2

Hi,
Yesterday, I discussed the simple version of the minimum payment trap. Today I'm going to discuss a more complicated and common minimum payment trap. This is how a more complex version of the minimum payment trap unfolds:
A relatively new cardholder uses his or her card for a couple of years and pays off the balance faithfully every month. At the end of two years, the cardholder's credit limit has been quadrupled. In addition, he or she has received numerous additional solicitations to obtain other money cards from different banks. Two and a half years into activating the first card, the cardholder has an emergency that requires him or her to use most of the credit limit on the card. He or she does not have the financial resources to pay it off at the end of the month, as he or she has been doing for the previous thirty months. When the bill arrives, he or she does the right thing, and pays every available dollar on the credit card, but still leaves a substantial balance. The following month, the cardholder's car breaks down. The card holder needs to max out the credit card to get the car fixed. Once again, when the bill arrives, the cardholder does the honorable thing and sends every dollar he or she can to reduce the balance, however a substantial balance remains. The next month, the card holder gets laid off from his or her job. Due to the amount of money put on the credit cards over the last two months, his or her savings have been almost wiped out. When the next bill arrives, the card holder succumbs to the infamous box in bold letters saying "minimum payment due" because he or she needs all the cash on hand. Over the next two months, the cardholder realizes that gainful employment is not coming as soon as he or she expected. During this time, the cardholder is still receiving solicitations for more credit, and due to his or her need for immediate cash, takes advantage of the offers. I will continue "part 2"
tomorrow.
Until then,
Alan

A Word of Caution About The Minimum Payment Trap for New Cardholders

Hi,
One of the biggest risks for new credit card holders is falling into the minimum payment trap. The minimum payment trap can be described as the following:
The card holder is very careful in making purchases that he or she can pay off with their monthly paychecks. The minimum payment trap begins when a cardholder purchases an item or items that that exceed his or her ability to pay off with the end of the month paycheck. The majority of the time, the purchases are prudent and made financial sense. A good example is when he or she comes across a sale of needed office attire that is significantly reduced in price. When the credit card bill arrives, the card holder is aware that there will be a large balance due. He or she usually has the best intentions of paying a significant amount of money on the bill and getting things back on track over the next few months. When the bill arrives, the number that jumps out on the statement is next to the phrase "minimum payment due." It is, of course, substantially lower than the card holder had anticipated he or she would have to pay. In many instances the minimum payment is no more than interest on the credit card with just a small principal reduction included. A portion of new card holders might succumb to only making the minimum payment each month. These card holders will find, on an annual basis, that the balance on their credit card might very well remain the same, even though they have made twelve payments over the year. For these credit card borrowers, after a year of making minimum payments, a very interesting phenomenon takes place. The credit card company increases the borrowers credit limit "for making timely" payments. Many times this scenario is repeated on a year by year basis until such time as the borrower is buried in a mountain of debt with no chance of getting out from under it. Tomorrow I will talk about "the minimum payment trap- part 2!!!".
Until then,
Alan