Interest rates on credit cards are usually very high (sometimes the high rate is deferred until after a promotional low-rate period), the compounding of interest can cause balances to grow significantly if only the minimum payment is made each month. Frequently, this is the real reason consumers run into credit card debt problems.
The best practice is to pay off as much of a credit card balance as possible each month. If it is not possible to pay the total balance, every effort should be made to pay an amount in excess of the minimum amount due. Consumer should attempt to pay the total interest outstanding on the month’s bill plus a portion of the outstanding principal.
If credit card debt is a problem, it might be appropriate to cut up the credit card until balances are paid off.
Answer By: Timothy C. Hilbert, CPA, is a director with Kreischer Miller in Horsham.