Why You Should Make More Than the Minimum Payment on Your Credit Card

It’s easy to get caught in the trap of making the minimum payment on your credit card. Usually, this payment is manageable, and it staves off late charges for at least another month. However, minimum payments don’t prevent interest from compiling on the balance you’re carrying. Being able to dodge late fees every month only encourages you to procrastinate on the repayment of your entire balance and plunges you further into debt.

Why Minimum Credit Card Payments Are Bad

The primary goal of a credit card company is to make money off its customers. By only requiring you to pay a small percentage of your total balance, they’re setting you up for a cycle of ever-increasing interest fees so they can line their own pockets.

Interest accrues more as your balance gets higher, meaning a significant chunk of your payment goes toward interest. Over time, the interest can grow even larger than the initial borrowed amount.

Another thing to keep in mind is that your credit utilization ratio impacts your credit score. If you use more than 30 percent of your available credit, your score takes a hit, making it harder for you to get mortgages and loans and increasing the interest rates available to you.

How to Pay Off Your Credit Card Debt Faster

Pay What You Can

Paying off debt isn’t an all-or-nothing situation. Setting a goal to contribute more than the minimum payment does not mean you have to pay off your entire credit card balance at once.

Instead, take reasonable steps toward increasing your monthly payments. If your minimum payment is $50, try paying $60, $70 or even $80. If you can double your minimum payment to $100, you’re in even better shape – this will cut your repayment time in half.

Cut Back Spending

Sometimes the harsh truth is that we are overspending on luxuries instead of paying off our debts. While any budget involves a balancing act between spending, saving, investing and paying off debts, you may need to allocate more money toward credit card debt at this point in your life.

Look for places in your budget where you may be able to save a few bucks here and there. Limit yourself when it comes to:

• Dining out
• Fast food
• Coffee
• Name-brand groceries
• Clothes
• Movies
• Concerts
• Subscription services
• New gadgets
• Vacations