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What Happens If I Make Only the Minimum Payment on My Credit Card?

Credit Card Basics, Credit Cards, Credit Score, Personal Finance
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One of the simplest things you can do to do to be sure you’re on track to building a healthy financial future is to get a credit card and use it regularly and responsibility. For most people, a credit card offers their first opportunity to start building a credit history.

However, while millions of Americans use credit cards and pay them off every month, there are others who find themselves succumbing to the siren song of the minimum balance. Everyone has a tight month every so often, and at times like this, paying the total balance on your card can just seem so optional, especially compared with other bills. (If you’re having trouble figuring out how to stretch your paycheck to pay your bills, read “How to Build a Budget.”)

But as easy as it seems to just pay the minimum balance on your credit card bill, the reality is that there are some truly scary consequences to failing to pay off your charges in full every month. Still not convinced? Take a look at these three negative consequences of making minimum payments described below — you can’t afford not to!

» MORE: How to pay off debt

1. Your credit score will fall

Making minimum payments on your credit card is a quick fix to coming up short on cash for the month, but over time the debt you’ll build up over the course of just a few months of underpaying can really mess up your credit score. This is because 30% of your credit score is determined by how much debt you carry, particularly on revolving credit accounts (such as credit cards). This means that accruing charges on your card and failing to pay them off is like putting a dent in your credit score every month; over time, this adds up to a lot of damage.

The best thing to do is keep track of your spending and make sure that you don’t charge more than you can comfortably pay off at the end of the month. Otherwise, you can expect a nasty surprise the next time you check your credit score.

2. Your monthly bills start to balloon

Most credit card issuers only require a minimum payment of 4% to 6% of the total balance to be paid every month. However, if you pay only this minimum amount every month and continue to make charges on the card, the total balance on the card is going to rise substantially; in no time, that 4% to 6% is going to amount to a pretty high figure that you’ll have to fork over every month.

But it’s not only your credit card bills that will shoot up if you only make minimum payments. Thanks to the damage you’ll be doing to your credit score, other monthly obligations — such as insurance payments, loans, even rent or mortgage payments — will be expensive, too. Lenders, landlords, and insurance companies charge people with poor credit more, so it’s important to keep your credit card debt levels down and your credit score high to avoid this added expense.

3. Your credit card costs skyrocket

Paying only minimums on your credit cards is dangerous for a lot of reasons, but probably one of the most obvious because of the interest that’s accruing on the unpaid balance. The average interest rate on a credit card is 15%, so it’s very expensive to fail to pay off your balance in full.

Plus, most credit cards charge a fee for exceeding your credit limit, which is easy to do when you’re paying so little of your bill every month, so be sure to avoid this mistake by making full-sized payments on your card.

Credit cards are helpful tools for building good credit, but don’t give in to the temptation to only make minimum payments, no matter how convenient it might seem. There are serious and expensive consequences to not paying the full bill every month, so be sure keep a close watch on your spending to avoid this trap!


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