When you make only minimum payment you’re giving temporary relief to yourself. But on other side you are committing to pay more in interest charges. This behavior can get you into serious financial trouble.
If you pay the minimum toward your balance each month, here’s what you can expect to happen:
Clearing payment will take much longer
Credit card issuers tend to set minimum payment requirements at rock-bottom levels. Most the cards require you to pay only 5% or the minimum due balance of the month, plus any fees and accrued interest.
If you pay twice the amount of the minimum, that repayment period gets cut in half.
See how it affects you: Look at the “Minimum Payment Warning” on your credit card bill. It includes a table that shows how much money and how many years you’ll need to pay off your balance if you pay only the minimum each month. You’ll significantly shorten that period just by paying more.
You commit to pay high interest charges
Unless you’re using a 0% AMF card, your interest charges will grow along with your balances. Making only the minimum payment, and you’ll barely wipe out last month’s interest. And if you keep charging items to the card, you’ll fall further and further behind.
Credit score could get a hit
Your credit utilization ratio is a major factor in your credit score, high balances can badly damage your credit. That makes it harder to qualify for future loans and credit cards with the best terms.
It’s best to use less than 30% of your credit limit on any given card. If you can use less, that’s even much better.
Paying the minimum is better than racking up late fees. And because late payments can damage your credit score, paying at least the minimum is essential.