A minimum payment on your credit card is the lowest amount you are able to pay without penalties. It could be a set fee, such as $25 a month, or it could be a percentage of your balance plus any fees or interest. However, making the minimum payment is not always the best idea financially. When it comes to debt it’s often true that the less you pay now, the more you’ll end up paying in the future.
Your Interest Will Grow
Making the minimum payment each month may not be enough to cover the monthly interest charges. So, unless you have a credit card with 0% APR you’ll want to pay more than the minimum payment toward your bill each month to avoid your total amount owed snowballing out of control.
It’ll Take Longer to Pay Down Debt
Just paying the minimum may feel good in the moment, but only putting down what is required will set you up for paying more in the long term. Not only will just making the minimum payment increase the amount of total interest but it will also take longer to pay back.
All credit card statements have a “Minimum Payment Warning” required under the CARD Act that shows cardholders how much interest will accumulate and the length of time for repayment if only the minimum payment is made. It’s a good idea to see how much you’ll pay in the long term and adjust accordingly.
Credit Could Be Affected
While making the minimum payment on time every month is a positive aspect to your payment history, it may not be great overall for your credit score. Making the minimum payment can result in increased interest and a longer payment period which can affect your credit utilization. Your credit utilization is how much of your available credit that you’ve used.
Keep making only the minimum payment and your interest and total owed will increase, which means you’re using more of the credit available to you, and therefore lowering your score.
Let Us Help!
Interested in opening a credit card to transfer your balance on current cards to pay down debt faster? We can also help you combine your credit cards into on payment with a Debt Consolidation Loan! Call us or stop in at one of our many locations today!