3 Reasons You Can’t Eliminate Credit Card Debt

If making payments is getting you nowhere fast, this is why.

Paying off credit card debt should feel like a race to the finish line, but more often than not it feels like you’re running on treadmill instead. You’re expending the same effort, but you’re not actually getting anywhere. It can be frustrating to no end because you’re trying to do the right thing, but it’s just not working.

“Credit card debt is one of the most challenging types of debts to eliminate because of the way it’s structured and how it gets repaid,” explains Gary Herman, President of Consolidated Credit. “If you wonder why you struggle so much to eliminate credit card debt when you don’t have trouble with managing loans, there are three good reasons that you have to overcome in order to be successful.”

Frustrated because you can't eliminate credit card debt?

Reason No. 1: You’re only making minimum payments

“Credit card companies don’t make minimum payment schedules because they’re an effective way for a borrower to repay their debt,” Herman explains. “Minimum payment schedules spread debt repayment out as much as possible because it’s one of the main ways issuers generate revenue.”

In fact, the Credit CARD Act of 2009 requires credit card companies to disclose certain facts about minimum payments, like how long you’ll be in debt and what you’d save by paying the debt off more efficiently.

Reason No. 2: Interest charges eat up almost 2/3 of every payment

Let’s say you have a credit card with 18% APR and a $5,000 balance. The minimum payment requirement on a standard credit card would be $125. Initially it seems like a sufficient amount to pay off the debt in a reasonable time – 5000 divided by 125 is 40. So it might appear that it would take you about 4 years to pay off the debt.

The reality, however, is that on a minimum payment schedule, that $5,000 debt would actually take 273 payments to eliminate. Part of the reason is minimum payments decrease over time, so as you pay down the balance, you pay less each month.

However, the bigger reason in this case is the interest charges. Of that first $125 payment you make, only $50 goes towards eliminating the principal debt owed. The other $75 dollars is what you pay to cover interest charges for that month. So roughly 60 cents of every dollar you pay is used on interest charges.

Reason No. 3: Penalty APR is even worse

With most bills, even loans, the negative impact of not paying on time is that you have late fees assessed on your account. However, late payments on credit cards can have effects that are much worse.

“Late fees are the least of your concerns if you miss a credit card payment,” Herman continues. “Penalty APR can, at minimum, double the interest rate applied to your debt. As a result once you fall behind it becomes an even tougher road to climb to get back to financial stability.”

According to CreditCards.com, the average penalty APR applied to credit cards that are more than 60 days past due is 28.45% and 60% of credit card issuers apply penalty APR. By law, the original rate must be restored once the cardholder makes 6 payments on time, but the damage done in the meantime can be significant.

Going back to the $5,000 debt, if you apply penalty APR at 28% then $116.67 of that $125 payment you made would go to cover interest charges. In other words, you pay off around $8 of the actual debt. As a result, over that six-month period, you’d pay roughly $750, but you’d only eliminate $48 of debt during that half a year.

“This is why credit counseling can be so invaluable once a situation with credit card debt starts to go south,” Herman says. “Credit counselors negotiate with creditors on your behalf to reduce interest rates and stop penalties. Since these agencies have proven records of helping cardholders eliminate debt effectively so it actually gets paid back, credit card companies are more willing to be flexible during negotiation.

“That’s why people who enroll in a debt management program typically see their interest rates drop below 10% and in some cases the creditor will agree to eliminate interest charges entirely.”

If you’re facing an uphill battle to eliminate credit card debt and getting nowhere fast, call Consolidated Credit today at or complete an online application to request a free debt and budget analysis from a certified credit counselor.