5 Reasons to Pay More Than the Minimum on Your Credit Card Bill
One of the things that many people love about paying with credit cards is the minimum payment.
Instead of being required to pay off your balance each month, you can carry a balance and pay only a minimum amount listed on your bill.
Typically the minimum payment for a credit card is about 4 percent of your total balance.
While this may seem like a huge advantage, there are many reasons why paying only the minimum is one of the biggest financial mistakes you can make.
#1: You Pay Much More Than You Intended For each month that you do not pay off your balance, your credit account accrues interest.
This is money that you owe to your creditor on top of the money that you spent on your original purchases.
Credit cards typically have an interest rate between 7% and 36%, with an interest rate in the teens being most common.
If you make only the 4% minimum payment on a $2000 balance for a card with a 14% interest rate, you will end up paying $740 extra in interest.
That is hundreds of dollars that could easily be saved by paying off your credit card quickly.
#2: It Will Take You Much Longer to Pay Off A minimum payment drags out your balance for years.
Using the example above, even if you pay the 4% minimum payment on time every month without making any other purchases, it would take you over 7 years to pay off your $2000 balance at 14% interest.
If instead you pay just 10% of your bill a month, you can cut this time in half to 3 1/2 years.
Paying 25% of your total balance each month would allow you to pay off your card in just 1 1/2 years.
The more you can pay each month, the more time and money you can save.
#3: You Are Vulnerable to Hidden or New Fees Banks and other creditors change their rules frequently, seemingly to try to trap their customers into paying more money.
They may suddenly increase their charges for a balance transfer or a late payment, or may begin to charge you an annual fee.
For just one late payment, most creditors will slap you with a hefty fine and increase your interest rate to 25-35%, sometimes for months! The longer it takes you to pay off your card, the more vulnerable you are to being hit with new fines that make it more difficult to become debt free.
#4: You Risk Maxing Out Your Card By paying only the minimum, you will continue to have a high balance for many months or years.
If you continue to use your card and do not realize how close you are to your limit you could accidentally max it out.
You may think that you are paying off your card quickly when in reality your interest rate is adding on new money to owe each month.
Maxing out a card damages your credit rating and can hurt your reputation with other lenders that you may seek out in the future.
#5: You Are at Risk if There is a Financial Crisis Keeping a balance on your credit card for the long-term puts you at risk in case some kind of financial crisis occurs.
Perhaps someone in the family gets sick or has an accident and you are hit with outrageous medical bills.
Maybe you or your spouse becomes unemployed.
By paying only the minimum, you are drawing out a credit card balance that you may not be able to afford if a future financial problem hits.
Paying off your cards quickly now can help to ensure that you have more money in the future when you may need it most.
For More Information Credit cards can be a useful spending tool when they are paid off over a short period.
If you find that you can only make the minimum payment on a card, you have spent beyond your means.
Don't let your credit card control your life.
Take charge today and learn more by visiting the website of the experienced New Orleans debt negotiation lawyers of Kervin & Young, LLC today.
Instead of being required to pay off your balance each month, you can carry a balance and pay only a minimum amount listed on your bill.
Typically the minimum payment for a credit card is about 4 percent of your total balance.
While this may seem like a huge advantage, there are many reasons why paying only the minimum is one of the biggest financial mistakes you can make.
#1: You Pay Much More Than You Intended For each month that you do not pay off your balance, your credit account accrues interest.
This is money that you owe to your creditor on top of the money that you spent on your original purchases.
Credit cards typically have an interest rate between 7% and 36%, with an interest rate in the teens being most common.
If you make only the 4% minimum payment on a $2000 balance for a card with a 14% interest rate, you will end up paying $740 extra in interest.
That is hundreds of dollars that could easily be saved by paying off your credit card quickly.
#2: It Will Take You Much Longer to Pay Off A minimum payment drags out your balance for years.
Using the example above, even if you pay the 4% minimum payment on time every month without making any other purchases, it would take you over 7 years to pay off your $2000 balance at 14% interest.
If instead you pay just 10% of your bill a month, you can cut this time in half to 3 1/2 years.
Paying 25% of your total balance each month would allow you to pay off your card in just 1 1/2 years.
The more you can pay each month, the more time and money you can save.
#3: You Are Vulnerable to Hidden or New Fees Banks and other creditors change their rules frequently, seemingly to try to trap their customers into paying more money.
They may suddenly increase their charges for a balance transfer or a late payment, or may begin to charge you an annual fee.
For just one late payment, most creditors will slap you with a hefty fine and increase your interest rate to 25-35%, sometimes for months! The longer it takes you to pay off your card, the more vulnerable you are to being hit with new fines that make it more difficult to become debt free.
#4: You Risk Maxing Out Your Card By paying only the minimum, you will continue to have a high balance for many months or years.
If you continue to use your card and do not realize how close you are to your limit you could accidentally max it out.
You may think that you are paying off your card quickly when in reality your interest rate is adding on new money to owe each month.
Maxing out a card damages your credit rating and can hurt your reputation with other lenders that you may seek out in the future.
#5: You Are at Risk if There is a Financial Crisis Keeping a balance on your credit card for the long-term puts you at risk in case some kind of financial crisis occurs.
Perhaps someone in the family gets sick or has an accident and you are hit with outrageous medical bills.
Maybe you or your spouse becomes unemployed.
By paying only the minimum, you are drawing out a credit card balance that you may not be able to afford if a future financial problem hits.
Paying off your cards quickly now can help to ensure that you have more money in the future when you may need it most.
For More Information Credit cards can be a useful spending tool when they are paid off over a short period.
If you find that you can only make the minimum payment on a card, you have spent beyond your means.
Don't let your credit card control your life.
Take charge today and learn more by visiting the website of the experienced New Orleans debt negotiation lawyers of Kervin & Young, LLC today.
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