Paying Your Credit Card Minimum Payment Will Do Nothing
It’s a perception that’s simple to decide: “I’ can just pay the minimum that I have to pay on my credit card each month and focus on paying the outstanding balance later on.” While this can work at some point but this is merely a short-term answer to your debt problems. In this article, you’ll learn the vital reasons why you have to pay more than the minimum payment each month on your credit card debt. Moreover, it can cause a negative impact on your credit standing over the period.
Minimum Payments Can’t Excuse You From Interest Fees
The primary hit that you will be getting by just paying the minimum is your interest charges. Though you can free up some money by just paying the minimum amount, you’ll potentially be paying more on the services and products that you have utilized due to the interest charges you accumulated. This is because your institution will likely impose interest charged on the outstanding balance that you haven’t paid.
For instance, having a credit card bill of $1,000. If you’re paying % as the minimum, then you’ll just be spending $30 per month. This will incur interest charges that will account for 20% or even more. Even if your interest rate is just around 14%, it can take beyond six to be able to pay off your $1,000 bill and an expense amounting to $455.04 in your interest fees. This tells you that your interest fees are almost half of your outstanding balance. Besides, the higher your bills are the higher your interest fees will be.
Minimum Payments Harms Your Credit Score
Though making the minimum payment might not directly impact your credit score in a negative aspect, it’s a great risk holding a huge outstanding balance on your credit which is relatively proportional to your spending limit.
So, the more you accumulate unpaid balance on your card, the lower you’ll get in terms of credit limit. Having this ratio can negatively affect your credit score. This is because the duration of how long you’re not able to pay your credit affects your creditworthiness.
In general, if your balance is over 30% of your credit limit, you’re credit score will be in danger. This will make it difficult for you to obtain loans or lines of credit in the future. So, in order to knock down your outstanding balance, you have to make more than the minimum payment each month.
Now, if you haven’t even paid the minimum payment each month, the best thing to do is to stop using your credit card and find ways to earn more money to pay it off. Also, make it a challenge to pay more than the minimum. It’s even better for you to out up payments twice a month and ensure that you’re paying on time. The key to your success is your willingness to cut back on your expenses. It’s also a good practice to monitor your spending and use cash instead of relying on your credit card.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.