Final answer:
Paying the minimum balance each month increases the cost of credit due to the accumulating interest on the remaining balance. It takes longer to pay off the debt, resulting in paying more in interest over time.
Step-by-step explanation:
Paying the minimum balance each month ultimately increases the cost of credit because of the interest charged on the remaining balance. When you make a minimum payment, only a small portion goes towards the principal amount, while the majority is applied towards the interest. As a result, the interest continues to accumulate on the remaining balance, increasing the overall cost of credit.
For example, if you have a credit card balance of $2,000 with an interest rate of 15%, and you make only the minimum payment each month, the interest will continue to accrue on the remaining balance. This means that it will take longer to pay off the debt, and you will end up paying more in interest over time.
To illustrate this, let's consider two scenarios: one where you make the minimum payment each month, and another where you pay more than the minimum. In the first scenario, it will take much longer to pay off the debt, and you will end up paying significantly more in interest. On the other hand, if you pay more than the minimum, you will be able to reduce the principal faster and save money on interest in the long run.