Why you should pay more than the minimum balance on a credit card.
When using a credit card, the goal should always be to pay off the balance in full every month. However, sometimes that’s just not possible. For those times when it’s hard to pay off the entire balance, the next best goal is to pay more than the minimum due. Here are two big reasons why.
1. The Big Picture Matters
Paying only the minimum due on your credit card can leave money for other things. But let’s think about the big picture. Over time, only paying the minimum will cost you plenty. Each month that goes by with only a minimum payment is another month that you’ll get hit with interest. Each month, interest is applied to whatever remains on your balance, and that debt just continues to grow. Try to think of the long-term savings you’ll achieve by paying off more than the minimum balance.
2. Eliminate Debt Faster
When you pay more than the minimum payment on your credit card, you give yourself a chance to eliminate debt faster.
Example: Let’s say you have a credit card with a 15% interest rate and a balance of $2,000. If you pay $50 per month, it will take you five years to pay off that debt. You’ll also end up paying $789.93 in interest, on top of the $2,000 balance.
However, let’s say you decide to pay $100 per month. You’d be out of debt in just two years, and your total interest paid would be just $315.89. That’s a big difference in time and interest charges.
Do One Thing: Make more than the minimum payment on your credit card when you can’t afford to pay off the balance in full.
Written by Christ O’Shea, SavvyMoney.
