Should you pay credit card minimum or fully pay the balance? Americans have a lot of credit card debt. Exactly how much depends on what source you consult at any given time, but according to one government survey (as cited in Lerner, 2014), among Americans who have any credit card debt the average debt size is about $7,000. Other sources say $5,000 while some say $10,000, and certainly there are many people who have much more as these are just averages.
What’s the problem? We are Americans and we like to buy things! Well, the problem is, of course, that using credit cards costs you money in interest and fees. In addition, because the payments take up your money you are sacrificing future spending power by accruing debt now. And, having high balances can hurt your credit score.
The worst news – making those minimum payments will get you almost nowhere. Let’s look at three reasons why you should pay more than the minimum payment on your credit cards:
Paying more than the minimum payment each month pays your credit card fasters which means you have less of a balance to be charged interest on. It saves you money!
Let’s say that you owe $10,000. If your minimum payment is interest plus 1% of balance, then your first payment would be just over $216. This amount would go down slightly each month as your balance goes down – assuming you do not use the card. If you make only the minimum payment each month it would take you 25 years and four months to pay off the balance.
And, it would cost you nearly $11,000 in interest. That means that every item you charged cost you more than twice what you actually paid for it. In 20 years you would still be paying for a meal that you charged 19 years earlier, and you’d be paying twice what the meal cost you.
However, if you paid $217 today, and then paid $217 every month, even when your minimum payment goes down, you would pay off the entire $10,000 balance in just 5 years and 7 months. You would end up paying less than $4,400 in interest – that’s less than half the interest and nearly one fifth the length of time to be debt free.
Obviously, as we showed in the example above, paying more than the minimum payment gets your balance paid off much faster. This means that your credit card is freed up to buy new things, if necessary. You are debt free faster. You have access to emergency money faster with an open balance. And, of course, having a lower balance improves your credit score.
Remember that about 30% of your credit score is based on how much of your credit limits you are using. So paying off your balances faster will improve your credit score. In fact, you always want to try to use no more than 30% of your available credit on each credit card.
So do you Pay Credit Card Minimum or Full?
Some people think that credit card minimum payments are going up, but most minimums are still pretty low. If you can pay off your cards, do it. If you want to improve your financial situation at least pay more than the minimum payment.
Lerner, M. (2014). Is your credit card debt average? And what’s average? Retrieved from,
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