One of the biggest mistakes people make when it comes to credit cards is only paying the minimum balance each month on credit cards with a high interest rate. If you don’t know it yet, this is one of the best ways to drown yourself in debt.
From minimum payments to maximum debt
It’s true, you can pay the minimum balance each month on your credit card. There’s no one to say that you can’t and you can be sure that your lender won’t give you a hard time about it since that threshold is written down in your contract. Many people even believe it a good way to handle your credit card as they feel they’re saving money. But it’s not. It’s actually quite the opposite.
Just because your contract says that that’s the minimum amount that you have to pay each month, it doesn’t mean that it will take care of all that you owe. It won’t. Even worse, you now have to deal with interest, which is about 15% to 20%. So, as you make those minimum payments, the amount that you owe continues to grow each month.
By making minimum payments, you’re just throwing money down the drain. You’re not saving, you’re not making smart investments. You’re just losing money!
How to protect yourself
The best way to avoid this situation is by paying your entire balance each month. This way, interest rates will never get the best of you.
However, if, by some chance, you were forced to only pay the minimum balance for a period of time and the interest has now gotten out of hand, you should call your credit card company and ask them to lower your interest rate. It’s not guaranteed that they will accept. But you might be able to work something out with them. You lose nothing by asking, only by not doing anything.
Another thing you can do is to use a promotional balance transfer. It comes with a 0% interest rate. In fact, try anything that can get you a lower interest rate than that average 20% credit card companies charge.