Paying Just the Minimum Balance
What happens when you only pay the minimum balance on your credit card.
There are some areas in life where you can get by just fine by doing only the minimum or putting in the least effort required. For example, if your clothes end up on a chair at the end of the day rather than in your closet or if you need, but don’t get a pedicure all winter long, there will be no major consequences…life will go on!
When it comes to paying your credit card balance, paying just the minimum amount can be financially detrimental. If you don’t pay your balance off in full and pay just the minimum balance you will have to pay interest. The interest can build up with negative consequences.
If you pay only the minimum balance it will take you many months to pay off the balance in full, depending on the size of the balance. For example, if you purchase $500 worth of clothing on your credit card and you are charged 19% interest (which is a standard rate) and your minimum payment is just 3% of your balance, you will only have to pay $15, which doesn’t seem like much, but it will take you 48 months to pay it off!
In total, including all accumulated interest, you’ll end up paying $716!! Besides, what are the chances of those clothes still being in fashion in 48 months from now??
If your balance is significant enough and it takes you a very long time to pay it off, it is possible to end up paying more in interest than you paid for the original purchase.
Please think twice before swiping your credit card to buy something you can’t afford to actually pay for. Once you start owing significant balances, just making the minimum payments can consume a big part of your earnings, which will make it even more challenging to budget and climb out of debt.