It’s one of those popular credit card myths out there that can really hurt your finances. Many people wrongly believe that by just making the minimum monthly payments they can take care of all their credit card related problems. This is, unfortunately, false. The following article will show you why just making the minimum payments will get you nowhere, so that you can take better care of your finances.
Why do people do it?
A lot of people only make the minimum payments each month because they think they can save money this way. It’s true that, by paying less each month, they have more cash to spend on other things. But, in the long run, they actually lose money.
Everybody knows that credit cards come with interest rates. Those interest rates stay dormant if you pay off everything you owe on time and in full. But, if you don’t, then they kick in and start adding more money for you to pay to your credit card company. In the end, your purchase will cost you a lot more than its actual worth.
If you really want to save money, just paying the minimum each month is not the way to do it.
What happens if you just pay the minimum each month?
Besides the fact that you invite debt into your life, you actually end up hurting your score. Your credit card company will report you balance to the credit bureaus. If they see that you’re not paying everything off on time, they’ll lower your score, to show that you’re a high risk.
As a result, you’ll be faced with a lot of financial difficulties, since your credit score is also used by mortgage or insurance companies to calculate your premiums.
What can I do to avoid this unwanted situation?
The best thing you can do, of course, is to always pay off everything that you owe in full and on time. This way, your credit score will not only be safe, but it will actually improve. Not to mention that you’ll be avoiding debt.
However, if you’re unable to pay off everything that you owe immediately after the purchase, then don’t worry. Pay off as much as you can each month. Ignore the minimum payments. They won’t help.
If you pay off as much as you can each month, you may still have to pay more than the purchase was actually worth, but that amount will be nowhere near as high as the one you would have had to pay had you only made the minimum payments. Your credit score will probably also take a hit but, credit scores go up and down. That’s how they work. If you get rid of debt and start acting responsible, your score start improving in no time.