Credit Card Debt Explained With a Glass of Water
Summary
TLDRThis video highlights the dangers of making only minimum payments on credit card debt. It explains that with $10,000 of credit card debt and a 17% interest rate, it could take 36 years to pay off, costing over $60,000 in the process. The video uses a glass of water as a metaphor for the debt, showing how each small minimum payment barely reduces the balance due to high interest. The message encourages viewers to take more aggressive action to pay down their debt faster, preventing long-term financial strain and significant interest costs.
Takeaways
- 💳 Making only minimum payments on credit card debt can take decades to pay off.
- 💧 A large debt of $110,000 is used as a metaphor for the water level in a glass that needs to be emptied.
- 💵 The average minimum payment is around $142, which barely makes a dent in the total debt.
- 📉 After paying the minimum, interest rates of around 17.7% can quickly negate the payment made.
- 🔄 The cycle of making minimum payments and accruing interest results in minimal debt reduction.
- 📈 Even after a year of payments, the debt reduction is minimal, only lowering by $5.
- 🚫 The slow debt reduction means it takes a significant amount of time to see any substantial progress.
- 💼 If action is taken to lower debt, money could be used for more valuable things like education or a car.
- 🏦 After 25 years, with consistent minimum payments and interest, the debt is only reduced by $1,578.
- 🕒 It takes 35 years of consistent payments to finally see a significant reduction in debt, with over $60,000 spent.
- 💰 The total amount spent on interest over 36 years could have been used for significant life improvements or savings.
Q & A
What is the average minimum payment for credit card debt?
-The average minimum payment for credit card debt is around $142.
If you have $110,000 in credit card debt, how much do you reduce it by after making one minimum payment?
-After making one minimum payment, the debt is reduced by only $1, from $9,999 to $9,998.
What is the impact of interest on credit card debt after making a minimum payment?
-Interest charges around 17.7% of the outstanding balance at the end of every month, which can negate the reduction made by the minimum payment.
How much debt reduction can be expected after making a year of minimum payments?
-After a year of making minimum payments, the debt is reduced by only $5.
How much money would you have paid to the credit card company after a year of minimum payments?
-After a year of making minimum payments, you would have paid $1,846 to the credit card company.
What is the total amount of money spent on interest after 35 years of making minimum payments?
-After 35 years of making minimum payments and paying 17% interest every month, you would have spent over $40,000 on interest.
How much debt would you still owe after 35 years of making minimum payments on a $10,000 debt?
-After 35 years, you would still owe $1,578 on the original $10,000 debt.
How long does it take to pay off the entire $10,000 debt by only making minimum payments?
-It takes 36 years to pay off the entire $10,000 debt by making minimum payments.
What is the total amount spent to pay off the $10,000 debt after 36 years of minimum payments?
-The total amount spent to pay off the $10,000 debt after 36 years is over $60,000.
What are some alternative uses for the money that would have been spent on interest over 36 years?
-The money spent on interest could have been used for a used car, a brand new car, part of a child's college education, grad school, paying mortgage or rent, or retirement savings.
What is the final debt amount after 36 years of making minimum payments and paying 17% interest every month?
-After 36 years, the final debt amount is $0, but it takes a significant amount of time and money to reach this point.
Outlines
💳 The Burden of Credit Card Debt
This paragraph discusses the difficulty of paying off a large credit card debt of $110,000 with only minimum payments. It uses the analogy of a glass filled with water to illustrate the slow progress of debt reduction. The minimum payment of $142 each month barely makes a dent in the debt, as it is quickly offset by the 17.7% interest charged monthly. After a year of payments, the debt is only reduced by $5, and it takes 35 years to make significant progress, with the total amount paid being over $60,000 more than the original debt due to interest.
Mindmap
Keywords
💡Credit Card Debt
💡Minimum Payment
💡Outstanding Balance
💡Interest
💡Debt-Free
💡Payment
💡Late Payment
💡Missed Payment
💡Debt Reduction
💡Financial Freedom
💡Retirement
Highlights
Making only minimum payments on credit card debt can take decades to become debt-free.
An example of $110,000 in credit card debt is used to illustrate the point.
Minimum payments average around $142 per month.
After one month of minimum payments, the debt only decreases by $1.
Interest charges can increase the debt amount by 17.7% at the end of each month.
After a year of minimum payments, the debt only decreases by $5.
The example shows that in a year, $1,846 is paid, but the debt reduction is minimal.
In 25 years, with consistent minimum payments and interest, the debt is only reduced by $1,578.
It takes 35 years to see significant progress, with over $11,000 left to pay.
After 36 years, the entire $10,000 debt is finally paid off.
The total amount paid over 36 years is over $60,000, which could have been used for other purposes.
The impact of interest on debt repayment is significant, often overshadowing the payments made.
The importance of taking action to reduce debt is emphasized.
The transcript suggests that money spent on debt could be better used for personal or family needs.
The long-term financial burden of only making minimum payments is highlighted.
The example concludes by suggesting that with extra money, one could have significant financial freedom.
Transcripts
if you have a large amount of credit
card debt and are only making the
minimum payment every month you're not
going to pay it off anytime soon in fact
if you only make minimum payments it
could be decades before you find
yourself debt free
again say for example you have $110,000
in credit card debt which is represented
by the water level in this
glass in order to pay off that $10,000
you'll need to empty that entire glass
by returning the money you owe to your
credit card
company so every month you pour out a
little water by making your minimum
payment which is on average around
$142 that payment lowers the total
amount you owe to
$9,888 that's a little bit lower but not
much unfortunately there are outside
influences that can raise that amount
mainly being interest interest normally
charges you around 177% of your
outstanding balance at the end of every
month
after 177% interest on your outstanding
balance is charged that brings your new
debt amount to
$9,999 so after 1 month you've paid your
credit card company $142 but your total
debt has only gone down by
one the next month if you still only
make the same minimum payment of $142
your debt will be down to
$985 but again there's that pesky
interest sneaking up on you so after
paying 177% interest again your debt is
back up to
$9,99 that means after paying your
credit card company
$284 your total debt has only gone down
by two
bucks after a year of making that same
minimum payment every month you'll have
paid your credit card company
$1,846 but you'll still owe
$9,995 that means it'll take you an
entire year just to lower your debt by
$5 in a year later
you've only lowered what you owe your
credit card company by another
$5 eventually you'll see that if you
took action to lower your debt the money
you're paying the credit card company
could go towards things that you'd much
rather have like a used car or a brand
new car or part of your child's college
education or even grad school then after
a quarter century and more than $40,000
your debt will only be
$1,578 less
only after 35 years without a single
late or missed payment will you finally
start to see some progress when you have
a little more than $11,000 left to pay
then after 36 years of paying
$142 minimum payments and 17% interest
every month you will finally have paid
off your entire $10,000 of
debt but in order to pay off that
$10,000 you've taken more than three and
a half Decades of your life and and
spent more than 60
Grand just imagine if you had an extra
$61,000 60 you could have used that for
anything from shopping and vacations to
paying your mortgage or rent or you
could just set it aside for retirement
you could even have spent that money on
your children or grandchildren cuz even
if you didn't have them before you got
into debt you could wind up with both of
them after 36 years
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