When you receive a credit card statement, you have the option of paying off the full balance or paying an amount known as the minimum payment by the due date. Which amount should you pay? A question we hear frequently is “Should I only pay the minimum on a credit card statement?”
Full Balance Versus Minimum Payment
Whenever you can, the best thing to do is to pay off your full credit card balance. When you don’t carry a credit card balance, you save money on interest and you avoid getting in over your head in debt.
If you pay just the minimum amount by the due date, it keeps your account in good standing and it avoids having a late charge added on to the amount you owe. The problem is paying only the minimum payment doesn’t help you get ahead much if you want to get out of credit card debt.
When Should You Pay the Minimum Payment?
If you’re in financial trouble, it’s better to pay the minimum amount than to miss a payment. If you allow a single payment to go 30 days late, it shows up on your credit report and remains there for seven years. This lets potential lenders know you might not always pay what you agreed to pay when it’s due.
You should avoid paying only the minimum amount on a long-term basis. Paying only the minimum may save you money in your immediate budget, but it makes it take much longer to pay off your debt. The “minimum payment warning” on your monthly statement shows you how long it will take to pay off your debt if you pay only the minimum amount.
Interest on Credit Cards
The interest rate charged on credit cards is often high, which means if you pay only the minimum payment, the amount of interest that accumulates can make it hard to pay off your debt. The minimum payment is often very low, sometimes as low as one to two percent of your total balance.
How Paying Only the Minimum May Affect Your Credit
If you pay only the minimum, your total debt will grow as you continue to use your credit card. If this happens, your credit utilization goes up, which can bring down your credit score. If you can’t pay off the full balance, try to pay more than the minimum. Paying double the minimum payment can help to shorten the amount of time it will take to pay back the balance.
Pay attention to your balances and figure out a way to pay them back as soon as you can. To help protect your credit, keep an eye on your credit report to make sure your balances and your payment history are reporting correctly. If you find any errors on your credit report, you should dispute them immediately.
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