Making just a minimum payment on a credit card is very rarely a good idea. It might seem like it at the moment — especially if money is tight — but when it comes to handling credit cards and debt, you need to think of the big picture. Here’s what you should know about minimum payments.
Making a Minimum
When you pay only the minimum payment on your credit card, you’ll end up paying interest on the balance. Making a minimum payment will also take you longer to pay off your debt.
Missing a Payment
While paying the minimum will cost you, missing a payment completely is even worse. If you miss even one payment, your credit score will plummet. You will also be charged a late fee and if you are more than 60 days, you could get hit with an increased interest rate penalty. If you continue to miss payments, your debt could be sent to a collections agency.
You should always pay your credit card balance in full, every month. Here’s why:
Save money. It might seem like a tough pill to swallow, but making the complete payment every month will save you money. The interest that comes with a credit card balance makes it tough to dig out debt.
Keep your score high. When you pay off your balance, you keep your credit utilization ratio low, which helps your credit score.
Pay off debt faster. When interest adds up, it makes it harder to pay off your debt quickly.