Avoid Only Making the Minimum Payments on Your Credit Cards
There are two reasons you need to avoid only making minimum payments on your credit card.
The first reason making only minimum payments is not enough is that it can lead to losing control of your personal finances. If you don’t pay more on the principal of your balance you can run the risk of high-interest rates compounding your debt to the point where it is unmanageable. Many credit cards have high-interest rates of 18% or more. At this rate, the compounding increases the amount owed.
Sometimes a credit card company will give you a credit line increase because minimum payments were made on time. The credit line increase would then increase the ability to acquire more debt and to be charged more interest. Paying as much as possible is the best way to prevent exponential interest growth. It’s nice to pay at the very least double the minimum payment due. If you have an opportunity to pay more, It is advisable to so. If your credit card balances tend to get high, you should pay for some things in cash. Groceries and gas are examples of things that could be paid for with cash.
Another Reason to Pay More Than the Minimum Balance
The second reason you do not want to pay the minimum balance is that it will lower or keep your credit score from increasing. Only paying the minimum balance gives the perception that you may not be doing well financially. Even though you may have paid on time every month, it can be perceived that you may be a credit risk. Paying only the minimum payment may prevent you from getting more credit in the future. You might get approved but you may receive high-interest rates on loans. Again you should at the very least double the minimum payment. Try paying your balance down further. Use extra money such as in a work bonus or income tax refund to pay down credit balances.
The other thing a credit report will show is the all-time high balance of each of your credit card accounts. If your credit limit is 2,000.00 dollars and you have a high balance of $2,125 because you went over the limit of your credit line you will probably lose a few points off your credit score.
If you have any questions whether your credit score has been impacted, you can always have your credit score checked. When you request your personal credit report to review credit history and to learn your credit score, you will not have an inquiry put on your account.