The High Cost of Making Only the Minimum Payment
Posted by: Staff Writer | Jul 15,2007
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Sure, it's cool to see that your $1,000 credit card balance only has a minimum payment of $47, especially after a rough week of car payments and the mortgage. Don't forget that the credit card company loves it when you only make the minimum payment. Why wouldn't they? At this rate, you'll never pay the balance off. That's right, never. Credit companies don't care if you ever pay more than the minimum. That means more money for them in the long run, through more interest on your monthly balance.
Consider These Facts Before you Make that Minimum Payment this Month: - When you get that credit card statement and see your minimum payment, the low number looks good. You may even have it setup on an automated payment plan and have it come directly out of your checking account. It gives you the feeling that you're on top of your bills and taking care of your responsibilities. It's a false illusion. If all you ever pay is the minimum, it will cost you money.
- If you pay only the minimum payment amount or only a few dollars over it, you will most likely take 20 years to pay off your debt. After interest is added, your debt will be more than doubled.
- Consider your other interest rates. If you've been using your card overseas or have taken out cash advances, those interest rates are even higher. In these cases it's very likely that you're paying over three quarters of your minimum payment only toward the interest and very little to the actual balance.
- Your credit card issuer may decrease your credit limit, add fees or a variety of other penalties for consistently making only the minimum payment.
It's best not to carry any balance at all on your card. When you pay your balance off completely every month is when you truly are helped by credit cards and not drawn into the pitfalls of debt. If nothing else, try to pay at least $10 to $20 more than the minimum. It helps more than just paying the least you can get away with, but still allows you to slide a month or two when unexpected expenses arise. It may help to pay the monthly minimums and then at the end of the month pay a little bit more.
There are other ways around the high cost of making only the minimum cards terms and payment. Start by educating yourself on your cards terms and agreement. Read the fine print and be sure you understand it. Call your credit card issuer with any questions on the minimum payment, read the Fair Credit Reporting Act and learn how it affects you.
Most importantly don't live above your means. Charge only what you can successfully pay each month and if you find yourself getting behind, call your credit card issuer right away.
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