22 Jun Is It Okay To Just Pay The Minimum On a Credit Card?
Making only the minimum payment on your credit card is still good for your credit. It keeps your account in good standing, and keeps you from accumulating late fees, but it doesn’t do much more. At Pivotal Wealth, we specialize in helping our clients become debt-free, and we’ll be the first to tell you—making only the minimum payment won’t get you very far if you’re working on reducing your credit card debt.
Paying Down Debt Takes Much Longer with Minimum Payments
Minimum payment requirements are generally quite low. You will likely be required to pay either a fixed amount or a low percentage of the total balance. Some cards require you to only pay one or two percent of the balance each month, in addition to fees and accrued interest.
These are really small payments, and while making these payments on time can help you to avoid late fees, you will not make any progress if you want to pay down your debt. You’re looking at making minimum payments for a very, very long time.
Paying the Minimum Leads to Bigger Interest Charges
With most cards, interest charges increase in accordance with your balance. This is true for almost every card other than 0% APR cards. Making only the minimum payment each month and continuing to charge purchases to the card will make your interest charges higher, causing you to fall further behind in paying off your credit card debt. It will feel like no matter how much you pay, the balance never goes down.
Your Credit Score Could Take a Hit
If you are only paying the minimum amount on your credit card each month and continuing to charge things to the card, your credit balance will increase very quickly. This means your credit utilization ratio will also climb as quickly as your balance.
Your credit utilization ratio is the percentage of your credit that you’re using, and it’s a major factor in your overall credit score. An increased credit utilization ratio will hurt your credit score. When your credit is badly damaged, it will be much harder for you to qualify for additional lines of credit.
Get Help From a Financial Professional
While paying the minimum amount is always better than racking up late fees, it is important to always pay at least the minimum amount. However, to get out of debt, you should eventually start paying more than the minimum. If paying down the balance is too difficult, you may want to consider debt reduction solutions.
Pivotal Wealth helps ordinary people become debt free. Whether you have credit card debt or student loan debt, owing money means you’re not able to invest in yourself and build your wealth. Debt robs you of financial freedom and can put you in a vicious circle of playing catch up trying to reduce your debt. We want to change that! Give us a call today to learn how making more than your minimum credit card payment can help you become debt free.