This post is to teach everyone how to calculate their minimum payment that they get on their credit card statement. All credit card issuers and banks must by law use the same precedent to calculate the payment. If you have several credit cards it is advisable to check the minimum payment on each, however if you don’t have the time you can carry out random checks on each card statement to ensure that you are not being over billed or cheated. In most instances the minimum payment will be approximately 1.8% to 4.1% of the outstanding balance on any credit card. The key is not what you pay monthly but how much of that payment goes to interest and how much goes to principal. To illustrate the calculation of a minimum payment on a credit card statement let us use some standard figures for say a Bank of America Credit Card You must note and write down these figures:

• Current Outstanding Balance (OB)
• Your Interest Rate (APR)
• Minimum Payment Calculation (MPC)
• Minimum Payment Amount (MPA)

For this example we said the OB = USD$2,000, the APR = 12% and the MPC = 2%

The formula is OB x MPC = MPA * 2,000 x 2% = $40.00

If your MPA is $40, this is not really a lot for an outstanding debt; however you must calculate how much goes to principal. The formula for this is APR/12 (being 12 months in a year) x OB. This will determine exactly how much of your minimum payment will be going to your principal owed. Let’s illustrate this – 12% / 12 months x 2,000 = 20.00. This means that $20.00 of the $40.00 you pay will be going towards interest that an effective rate of 50%. Astounding figures if we look on it in detail. If a credit card holder continues this then it will take years to repay the credit card debt and lead to excessive payments. This is why it is key to pay more than the minimum payment on any credit card debt. What many people don’t actually keep a breast of are bank fees. Below is a list of fees that are usually added to a credit cards minimum payment that inflate the MPA and result in less of your disposable income going to the bottom line principal.

• Late Payments Fees
• Over The Limit Fees,
• Credit Insurance Fees
• Processing Fees
• Yearly Fees

Once you have deducted these from the MPA on your credit card statement then you are able to calculate exactly what portion goes to principal and to interest. There are several calculators, however without taking into to consideration the above listed fees these calculators do not give you an accurate figure. This is easy on a month over month basis to calculate and to pre calculate as well. We teach our readers to examine each statement on its own merit and micro manages their debts.

Credit card debt is at time a seemingly insurmountable problem that many people struggle to get over. Regardless of the credit card company that issues the service you will need to first comprehend exactly how a credit card works, its true purpose to the issuer and its true purpose to the card holder. Credit card interest is shown as an annual percentage rate or what is better know as APR this is the fee charged by the bank for using the credit card or borrowing the money. The concept is based on the bank allowing a card holder to spend cash in the present or immediately that would otherwise take the card holder a long time to accumulate or amass. The banks and card issuers are compensated for providing credit card holder by charging and collecting these interest charges. This is the benefit to the card holder and the card issuer. By 2004 the average credit card debt per household was in excess of USD$4,000; this translated into a USD$800 payment per year on credit card interest. Credit card debt has become almost 50% of total American consumer debt which in 2004 stood at approximately USD$1.5 trillion, a staggering figure of USD$19,000 per household. We examine a 5 step programme of how to get out of credit card debt.

A.) STOP USING YOUR CREDIT CARD – Most card holders pay their minimum payment and a little extra and then use the card for other purchases. This practice must stop immediately.

B.) PAY MORE THAN YOUR MINIMUM PAYMENT – Card holders must begin to pay more than the minimum payment. This will clear the interest and continue to reduce the principal amount that the interest is calculated on.

C.) CONSOLIDATE DEBTS – Paying on several cards can lead to bankruptcy, the most prudent way of avoiding costly debt over time is to shop around for the lowest rate on debt consolidation and then apply options A & B.

D.) DON’T CREATE NEW DEBTS – If during you struggle to clear credit card debt you will be tempted to use and accept new credit card offers. This is a major dilemma that will lead to more massing debts.

E.) CREATE A SAVINGS/CHEQUING ACCOUNT – Using a savings account to clear your debts is an apt way of building a good credit score that shows good repayments and proper saving and spending habits. This is the final step and a sure way to recovery.

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