The Dangers of Minimum Credit Card Payments

02/29/2008
Security and Protection

When you apply for a plastic, you take into account such credit card features as APR, maintenance and set up fees, rewards, introductory and grace period, and some others. As a rule, only basic card options and bonuses attract your attention. Not everybody bothers to read terms and conditions from the beginning up to the end.

And really few credit card holders take pains to figure out the best way to manage their plastics. They just buy merchandise with their cards and then make their minimum monthly payments. They suppose that paying on time is the main rule of reasonable credit card use. But is it really so?

On the one hand, it is hard to oppose the fact that making your credit card payments on time is important. This protects you from penalty fees and default rates. But on the other hand, are you sure that it will save you from a revolving credit card debt?

I guess, you realize that this is exactly the case of card owners who prefer making just minimum credit payment. It is quite clear how you can accrue a revolving debt. You make purchases with your credit card, your balance keeps increasing from month to month. And do not forget about your interest rates that add up a pretty penny to your existing balance. This way, making just minimum monthly payments, the balance you will manage to accumulate over a few months will strike you a lot.

That is a fair way to get to a debtor's prison. In fact, credit card companies are quite satisfied with this status quo. Creditors allow you to make minimum payments not because they are so understanding and caring. They just want to make more profit from your financial missteps.

Minimum payments are credit card holders' frenemies. This option seems to be very convenient. On the one part, you are not forced to pay off your entire balance every month. But provided that the typical US family credit card debt averages $ 9,000, and assuming that it will take you about 30 years to eliminate it making minimum payments, plus interest and fees, you would want to be made to pay more than just that minimum.

The statistics shows that about 11% of credit card users make just their minimum payments. Maybe they just do not realize that they can end up filing for bankruptcy, being unable to pay off an enormous credit card debt.

Staying away from Debt Is Better than...

According to financial experts at least 2 or 3 minimum payments are the amount of money you should pay off to stay away from credit card debts.

It is much easier to avoid a credit debt, rather than trying to get rid of it. Paying off your entire credit card balance on time every month guarantees you a protection from debts and a growing credit score.

Eliminating Debt

In case you have a debt already, try to pay it off as soon as possible. Use your tax returns, cut some of your expenses, if you have some savings for a rainy day, dip your hand into your funds to eliminate the debt. You can also get a balance transfer card with 0% introductory period, transfer your balance on it and pay it off until the promotional period expires.

Remember, making just minimum credit card payments is one of the main don'ts when it comes to credit card use. Try to resort to this option only in case of emergency. Be wise in your credit card management.

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Comments

Jaden Maxwell, 01:23 AM, March 26, 2008
I generally make 3-4 minimum payments a month. This really helps to stay out of debt. But I appreciated all virtues of making just one minimum payment when my wife got into a car accident and the car repair ate a pretty sum of my money funds.

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