Why you should never make just the minimum payments on credit card debt

If you have credit card debt, the last thing you want to do is just the minimum payments. It’s almost universally accepted that you should pay more than the minimum when it comes to your credit card bill.

After all, if you can’t afford to pay off your bill in full, why get a credit card in the first place? In fact, many credit card agreements even include language that suggests making monthly payments above and beyond what’s due every month will help you get out of debt faster.

However, while making additional payments on your balance is almost always a good idea, making just the minimum payments could end up costing you a lot of money. Here are some reasons why you should never make just the minimum payments on your credit card debt and what to do instead.

Credit card interest is really, really high

Credit card interest rates are generally higher than other types of consumer debt. This is because creditors know that many people will find it difficult to get out of debt and can’t be expected to pay off the full amount, so they make sure to make a profit off of those people. While exact numbers can vary based on your creditworthiness and the terms of your individual credit card agreement, the average credit card interest rate is currently 16.3%. While some banks may offer lower rates, the key is to remember that credit card interest is not income. You’re paying for the privilege of using the money, so you should try to avoid it when possible.

You’ll be in debt forever

The longer you’re in debt, the more you’ll have to pay in interest. If you only pay the minimum amount due each month, it’ll take you longer to pay off your credit cards. Credit card companies make money by charging a certain amount on each card, then charging interest on that amount, and tacking on additional fees and other charges. If you pay just the minimum amount due, you’re not actually reducing the amount you owe. In fact, the only thing you’re doing is adding more interest to the total amount you have to pay off at the end of the month. If you don’t pay off your credit card debt, it’ll continue to grow, even if you’re making payments every month. It’s incredibly easy to fall into a debt trap if you don’t take action to get yourself out of debt as quickly as possible.

Because there’s no point in just paying the minimum

Many people recommend making the minimum payment when you first get a credit card, but why would you ever want to do this? Credit card companies make money off of you every time you make a purchase. If you make just the minimum payment every month, it’ll take you years to pay off your credit card bill! While there are certainly situations when making the minimum payment makes sense, like if you don’t have the cash to pay off a purchase, it’s not a good idea for the long run. You should always make as large a payment as possible, even if it’s more than the minimum. However, if you can’t afford to make a payment big enough to cover the full amount, then it’s probably better to just make the bare minimum payment.

Paying more than the minimum will barely make a dent

It may seem like paying more than the minimum on your credit card bill each month would reduce the total amount you owe, but that’s not exactly true. Let’s say you have a $3,000 credit card bill at a 16.3% interest rate, and you make $100 payments each month. If you only make the minimum payment each month, it will take you over five years to pay off the bill. If you instead make an additional $100 payment each month, it will take you over six years to pay off the bill. The only difference is that you’ll end up paying $300 more in interest over the life of the bill, which is a lot of money for no tangible benefit. That’s not a good investment! If you can’t afford to pay off your credit card balance in full each month, you need to make the largest payment you can afford.

Should you pay off your credit card with a loan?

Some people recommend using a personal loan to pay off your credit card debt so you can avoid paying interest. This can be a good idea if you’re able to get a good interest rate on the loan, as it will save you money in the long run. However, you should make sure to keep your credit utilization ratio low. Your credit utilization ratio is the percentage of your available credit that you’re currently using. If you’re putting everything on a personal loan, most credit card companies will consider that to be 100% of your available credit, which is a bad thing. If you end up maxing out all of your credit cards, it will negatively impact your credit score as well.

Conclusion

Credit card interest rates are high, and you’ll pay more in interest if you only make the minimum payments each month. Instead, you should make as large a payment as possible, even if it’s more than the amount due. If you can’t afford to pay off your credit card in full every month, you should still make the largest payment you can afford. And if you’re struggling to pay off your credit card debt, you might want to consider getting a credit card debt reduction loan.