Why you shouldn’t pay only the monthly minimum on credit cards
When credit cards are used properly, they can be great. They provide a great deal of comfort to consumers who would otherwise struggle with paying medium to large sums of money upfront for their purchases. Using a credit card delays the actual payment with the idea of a temporary loan from your financial institutions and the expectation that you will pay back the money later on. Your monthly credit card statements are your deadline to pay it back without earning interest.
On the other hand, many individuals have become too reliant on, and too comfortable using, credit cards. They are neglecting to pay off their monthly accumulations quickly, and without recognizing the consequences.
Why you should not only pay the minimum
While paying at least the minimum amount is important, the remaining balance accumulates significant interest—usually around 20 percent on most credit cards. Over time, a relatively reasonable purchase becomes increasingly expensive because the interest grows until it is paid off completely. Unfortunately, most of the clients I meet with are in financial difficulty because of credit cards that got away from them.
There are many advantages to paying off as much of your credit card as possible. The purpose of credit cards is not just so consumers can avoid upfront spending on their purchases, but also, quite simply, to establish credit. This means that any potential lenders one seeks out in the future can see how responsible they are with their finances, including how quickly they pay back loans.
If you’ve been reckless with your credit card, the worst thing you can do is hide. The longer you wait, the more difficult the problem will be to resolve.
The first thing you can do is use my Debt Options Calculator to see how much it will cost to pay off your credit cards with interest over five years (it will be under the "Dig Out" option). One of the biggest traps that people fall into when they are trying to dig themselves out of debt on their own is making payments that just cover the interest charges but aren’t really reducing the principal.
If you're struggling with credit card debt, don't hesitate to get help. Contact our office today for a free, no-obligation consultation. We can help!