Posts Tagged ‘paying credit cards’

Why You Should Never Just Pay Your Minimum Credit Card Payment

Are you one of the millions of Americans only paying the minimum balance due on your credit cards each month? Unfortunately, during one of the toughest economic times of our countries history, many Americans are struggling to even make the minimum payment. But simply paying the minimum payment each month will keep you in credit card debt. Let’s take a look at why you should never just pay your minimum credit card payment.

Your credit card balance will not go down
If you are carrying a balance on your credit card and you are only making the minimum payment each month, your balance will not go down. In fact, if you are only paying the minimum, your debt can actually go up each month. You need to remember that you are being charged interest on your average balance. Another thing to worry about is that if you are close to your credit limit, the interest charged may actually send your credit card balance over the limit. The credit card company will then add to that balance by charging you an over the limit fee. You can very well end up spiraling deeper and deeper into debt if you continue to only pay your minimum credit card payment.

Your credit score
If you are continuing to only pay the minimum balance on your credit card, your credit score isn’t improving. You can even lose points on your credit FICO score if you are too close to or over your credit limit. Your credit score is vital if you are looking to purchase a new car or a new house. Your credit score can be a deciding factor in the amount of interest you will be charged on these loans. The better your credit score, the lower the interest rate. As you pay down your debt on your credit care, your credit score will improve.

The creditor can raise your APR
If you are only making your minimum credit card payment each month, or your balance is too close to the limit, the credit card company can actually raise your annual percentage rate (APR). If this were to happen you will then be charged more each month on your balance which will increase your balance and can plunge you deeper into debt.

So if you are one of the millions of Americans buried in credit card debt, you will need to start paying down your balances. Pick the credit card with the highest interest rate and begin to pay more then the minimum balance each month, this will help you pay the credit card off. Continue this same process on the rest of your credit cards until they are all paid off. Remember, it took you time to build this debt up, so it will take you time to pay it off. And remember, the minimum payment is only a suggestion from the credit card company. Of course they want you to take your time paying off your debt, they make more money the longer you take.