What Happens If I Only Pay The Minimum Payment On My Credit Card? | CreditShout

What Happens If I Only Pay The Minimum Payment On My Credit Card?

By Dan Rafter / June 16, 2019
What Happens If I Only Pay The Minimum Payment On My Credit Card?

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If you’re like most consumers, there’s going to be times when you can only pay the minimum payment on your credit card.

We’ve all been there at some point and time, money is tight and you can only afford to pay the minimum.

While it may sound like a good idea for your budget, this is not a good strategy to get your credit card paid down.

When you only pay the minimum payment on your credit card, the relief you feel is only temporary. Worse, this means you’re going to be paying more for interest.

That’s the trade-off you get, when you pay the minimum payment, you pay the biggest amount of interest.

Paying your minimum credit card payments can get you into trouble if you’re not careful.

For those of you that pay the minimum toward your balance every month, this is what you’re going to get in return:

  1. Paying down your debt takes a lot longer.
  2. You’ll end up paying high interest fees.
  3. Your credit score is likely to take a negative hit.

But why? Let’s take a closer look at each one.

Paying Down Debt Takes A Lot Longer

What Happens If I Only Pay The Minimum Payment On My Credit Card

When you pay just the minimum on your credit card, you might as well say, “I’ll catch up with you next month.”

Credit card lenders tend to set minimum payment requirements at rock-bottom levels.

In most cases, you’re going to owe either a fixed amount (Usually $25-$35) or a percentage of the balance, depending on which of these would be greater.

There’s a few credit cards out there that only require you to pay 1-2 percent of the balance each month, plus any fees or accrued interest.

While making these small payments on time will eliminate any late fees,  the downfall is the fact that you’re not going to do much for paying your debt down.

In the end, you pay a lot more interest and the lender makes a lot more money.

Here’s something you may not know that will visually impact you and hopefully change your thinking a little.  When you get your next credit card bill, have a look at the “Minimum Payment Warning” on your statement.

It should include a table that will show you how much money and how many years you’ll need to pay off your balance if you continue to only pay the minimum credit card payment each month.

Go ahead and take a look. WOW! Right?

Bigger Interest Charges For You​​​​

What Happens If I Only Pay The Minimum Payment On My Credit Card

Unless you’re lucky to have a 0% APR card, your interest charges are going to grow with your balances if you’re only making minimum payments.

In fact, your minimum payment will be lucky to even all the interest charges you’ll rack up. If you continue to use your credit card, it just gets worse.

This is a tougher example, but let’s do one.

If you want to estimate your interest charges, you’ll need to divide your card’s (APR) annual percentage rate by 12 (12 months in a year) and you multiply it by your average balance.

If your card has a 21% APR, for example, your monthly interest rate would be 1.75 percent, or 21 percent divided by 12.

You’ll then multiply that by the balance you’re carrying.

To make the math simple, If you have a balance of, say, $10K, you’d owe around $175 in interest next month if you only pay your minimum payment now.

I know, maybe you don’t have that $10K balance, maybe yours is smaller.

However, even if we used $5,000 in our example, that’s still over $80 in interest you’d have to pay the next month.

If you’re unfortunate to have a high APR, it can be worse than that. This is why we always preach “responsibility” using your credit cards.

It Can Hurt Your Credit

The more credit you’re utilizing on your credit cards, more times than not, the lower your credit scores will go.

If you’re charging a lot on your credit cards and only making minimum payments, your credit score will likely fall.

Your credit utilization ratio is a major factor in determining what your credit scores are. Generally speaking, you want to be at least 30 percent or less on your credit card utilization.

Here’s an example. If you have a total credit limit of $20K between all your credit cards and you have $5K in credit card balances, your total credit card utilization rate would be 25 percent.

Perhaps you have nothing to worry about, but if you’re trying to get a job with a company that checks your credit, it can cause you issues making the cut.

If you’re trying to rent a home, it can force you to have to weigh other options.

We can’t say it enough, “be responsible using your credit.”

Here’s The Bottom Line

The only way to start knocking out your credit card debt is by paying more than the minimum.

If you’re struggling to keep up, you need to start thinking about different ways you can make additional income.

When you can, send an extra $5-$10 at the very least. If you can afford to pay more, pay it.

While minimum payments can help you get by for now, it often catches up with you in the end.

I know it can be hard for some of you to earn more money every month, but that’s what it takes to get out of this scenario.

I know it can be hard for some of you to earn more money every month, but that’s what it takes to get out of this scenario.

If you can start bringing in a few hundred dollars more a month, it’s going to give you the leverage you need to make bigger payments to knock out your credit card debt.

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