Credit cards: why shouldn`t I make the minimum payment?

Why shouldn`t I make the minimum payment to my credit cards? If I can repay a debt in instalments that don`t stretch my finances every month, what`s wrong with that?

If you`ve found yourself wondering about this, rest assured there are very good reasons to pay more than you`re actually required to on a monthly basis.

What`s wrong with minimum payments?

The longer you carry a debt, the longer the interest will have to accrue (unless you`re on an interest-free deal, of course). So it just makes sense to repay it as quickly as possible. Ideally, you`d do this before it accrues any interest at all - do that every single month and you`re effectively getting free credit every single month!

If you can`t manage that, your aim should still be to get your credit card balance down to zero as soon as you possibly can, so you`re paying as little interest as possible.

Making just the minimum payments means your credit card debt will almost certainly cost you a lot more - and take you a lot longer - to repay.

What`s the best way to tackle that problem?

Obviously, the best way to minimise your interest is to put every spare penny towards your credit card debt - but that`s not always realistic. Many people would rather pay more interest in the long run than give up all their luxuries.

But that doesn`t mean you can`t put at least some of your `spare` cash towards your credit card debts. If you`re looking for ways to stay motivated, try the following steps:

1. Find a good credit card calculator.
2. Put your details into it - how much you owe, how much the interest rate is, and how much your minimum payments are.
3. Note down how long it`ll take you to clear the debt - and how much you`ll have paid in interest by then.
4. Calculate how much you could afford to overpay your credit card debts by if you put every available penny towards this.
5. Run the figures through the calculator again, but this time use the `theoretical maximum` monthly repayment.
6. Note down how long it`ll take you to clear the debt in this case - and how much you`ll have paid in interest by then.

If you`re looking for motivation, just compare the first set of results with the second set and figure out how different the outcomes would be. This is the kind of thing you could even write down and put somewhere prominent, so you can glance at it every time you`re wondering whether you should spend money on non-essentials - or keep it to put towards your credit card debts.

Once you`ve got started on your `overpayment programme`, you could keep an eye on your debt situation using the same credit card calculator, just to remind yourself of how much you`ve achieved so far - and how much closer you are to being debt-free than you would have been if you`d just stuck with the minimum payments.

What should I avoid?

1. Wherever possible, avoid making just the minimum payments (obviously).
2. Don`t be tempted to use money you need for other things to overpay your credit card debts - there`s no point clearing your credit card debts faster if it means you`re falling behind on your other commitments.
3. Try not to use your credit cards for anything but emergencies until you`ve got your debts back down to zero - or at least down to a level you`re comfortable with.

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Tags: credit cards, minimum payment, credit card minimum payment, payment

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