When you make a credit card minimum payment interest racks up fast. Whether you have been using credit cards for decades or are just about to get your first card, there are things that you need to know about using credit wisely. If you have been using credit for long you will be glad to have this information now, and if you are just getting started then lucky you for getting informed right away! Here we go…
When you charge on a credit card your bill will come after about a month, telling you what your balance is on the card and what the minimum amount is that you must pay now. If you have much of a balance and you pay only the minimum payment you will be subject to interest.
When you have a large balance your minimum payment can still be quite small. It is usually either a set percentage of your balance (often about 3%), or commonly, all interest for that month plus 1%. Is there a credit card minimum interest charge? Not usually, but there could be; check with your bank and read the fine print in your credit card terms and conditions.
Here’s a credit card minimum payment example: Let’s say you had a $3,000 balance at 17% interest (not a bad rate, really – with bad credit you could have 22%, 25% or higher) and you had a 3% minimum payment. Your first payment would be $90. After that it would go down by a dollar or so every month (assuming you didn’t charge on it again. If you kept making only the minimum asked for it would take you 126 months (10 ½ years) to pay off the card, and you’d have paid $2241 in interest.
Bought a pair of shoes on sale using that card for $50? If you make only the credit card minimum payment interest could rack up. It really cost you about $90 once you paid the interest. Try this credit card minimum payment interest calculator out to see how long it will take to pay off your cards, then be sure to pay more than your minimum payment each month: http://www.creditcards.com/calculators/minimum-payment.php
Special offers, like zero APR or no APR on balance transfers, sound like great deals, but read the fine-print or you could get financially burned. Off there are fees written there, like a 5% balance transfer fee. Or secrets like that if you don’t pay the entire promotional balance by the end of the promotional period you will be charged all be back interest. Read, read, read.
If you have a somewhat high APR on a card and you have been managing that card well, paying on time, avoiding charging it too high and paying more than the minimum payment you can often call the credit card company and, successfully, ask them to lower your credit card interest rate. We can’t guarantee they will do it, but often they do, especially if you tell them you received a better offer from another credit card.
Just as with the previous point, if you have been responsible with your credit usage you can also call your bank to make a credit card limit increase request. This can be good if say you know you want to buy a new refrigerator that costs $1,000. Your limit is currently $1,000, so you could squeak the fridge in, but you are afraid it will hurt your credit to show that you are using your entire balance.
Call the credit card company and tell them your situation, then ask if they can raise your limit. If you have good credit with them they just might – it never hurts to ask. But do know that this request will probably put an inquiry on your credit report. Ask in advance if the request will force them to do a credit inquiry; if you have not had an inquiry in a while this shouldn’t be an issue, but if you recently applied for a couple new cards then you may want to opt out at this point so as not to damage your credit score.
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