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Making minimum payments on credit cards often leads to problems

RED WING, Minn — More than 40 million Americans expect to miss a credit card payment due date this year, according to a recent survey by WalletHub.

That’s 16 percent of all adults, and their average credit card debt per household is now more than $8,200.

Those are the national numbers, and they are large, but Greg Collins, owner of Collins Wealth Management with offices in Hastings and Red Wing, sees similar problems with credit card debt.

“Credit cards have taken the place of cash, and some families are really good at managing their credit card debt,” Collins said. “Some people have a tendency to forget that there is going to be a payment due, and they run these balances up.”

Collins often gets calls from people who want advice on how to overcome their credit card debt. He has seen debts as high as $40,000 or $50,000. Those situations are hard for him, because the interest rates are often 19-22%, so it is unlikely that people will be able to pay it off. He has sometimes had to recommend that a person needs to seek bankruptcy help in those cases.

Making minimum payments can be difficult, Collins said, and he added that credit card companies are required by law to note on the statement how long it will take to pay off the balance.

“If people buy something today and pay the minimum payment,” he said, “their kids will graduate from high school before they pay that off, and that also assumes that they are not putting any more debt on the credit card which doesn’t usually happen.”

The bonus risk

One situation which has added to the confusion is the trend of credit card companies offering bonuses such as 50,000 airline miles for opening a credit card account. Some people have tried opening and closing accounts to take advantage of the bonuses, but this can become very confusing and difficult to manage, Collins warned.

Credit card debt can create more than financial problems.

“When you get in a situation that you have in excess of $15,000-20,000 in credit card debt, there’s a pretty good chance that the marriage won’t survive,” Collins said, “because one of the two partners is probably a spendthrift. I run into that a lot. One person wants to buy stuff, and one person wants to save.”

Another current trend that is affecting many people’s credit card debt is the increased student loans that people are carrying after college.

“I feel for this younger generation,” Collins said, “because they really want to build their assets and their homes, but a lot of times, the credit card is what gets them through a situation.”

Think twice

Collins said that when people have credit card debt problems, he often finds out they own multiple credit cards with different companies. They might max out one card, and then start using a card with a different company in order to keep buying things.

To deal with this situation, Collins advises people to “take the two smallest ones first and pay them off,” he said. “We pay off one, then knock off another one. When you get three or four knocked off, then you can put a lot of money up against the bigger one. This might be a two or three-year situation.”

One final thought that Collins has about avoiding credit card debt is to think twice about a decision. He suggested that people get information about a purchase, then go home and think about it for a day.

“When you are home, you’ll think about if you really need that item, and what will you do without in order to get it,” Collins explained. “I don’t have a problem with people buying stuff. I just want to be sure they can pay for it.”