Looking into debt relief because you’re worried about paying only the minimum on your credit card? You aren’t alone. One of the most significant sources of debt in the United States is credit card debt. As of April 2019, Americans owed more than $1 trillion in credit card debt as a whole. That’s more than $8,300 per household.
Although a large percentage of those who have credit cards pay their balances off every month, not everyone can do so. Most people who have credit cards end up carrying over a tremendous amount from month to month.
Paying the minimum on your credit cards is bad for a few reasons. First, you are paying less toward your balance and more towards your interest first before anything goes towards the actual principal debt. If you are paying only towards your monthly credit card interest, it will take much longer to pay off the balance as most people keep using credit cards month after month and get trapped in a vicious debt cycle.
Find out more about why paying only the minimum monthly credit card payments on your balances could hurt you in the long run and how credit card debt relief may be a good option to consider.
Paying Only the Minimum
Most credit cards require a fixed minimum amount each month or a small percentage of the outstanding balance.
For example, the minimum payment might be $25 for small balances. For more significant balances, you might have to pay 2% or 3% of the balance each month. By paying only a small percentage of the balance monthly, it takes many people much longer, sometimes decades to get out of credit card debt.
Paying the minimum to your credit cards doesn’t even take additional financial charges into account. With the average credit card interest rate of around 18% currently, your minimum payment could go up as you take on even a slight amount of additional credit card debt. It’s essential to keep in mind how the power of compound interest will work against you when you have debt. The higher the rate, the more rapidly debt can compound. If you pay the minimum, you could wind up paying thousands in interest on a relatively small debt because of compounding interest.
Why It’s Tempting To Pay the Minimum
Many Americans are stretched thin when it comes to their monthly budgets. If you find yourself in this situation, paying more than the $25 to $200 minimum payment can be difficult. Your budget might not be able to handle it easily. If you can, you’ll want to cut back on other line items in your budget. For example, cutting your restaurant budget by the minimum payment would allow you to double up on the minimum and pay off your debt about twice as fast as you would if you were to pay only the bare minimum.
Why You Should Pay More Than the Minimum
Paying the minimum to your credit cards is a bad idea for another important reason other than getting out of debt more quickly. Your debt is tied to your credit score. Many people who have credit card debt are close to maxing out their credit limits. This means that their credit scores are not as high as they might otherwise be.
If you can pay down your cards more quickly, your credit utilization percentage will go down. The amount of your available credit you’ve used is a significant part of the credit scoring criteria. Lower debt balances are always better, and they will help you improve your credit score. A higher score will mean you can pay a lower interest rate when you take out an auto or home loan. Unfortunately, having limited access to additional credit might mean you have trouble getting a loan at all.
Getting Help with Credit Card Debt Relief
There are options for getting help should you find yourself in crippling credit card debt. The professionals at UmbrellaDEBT can look over your budget, your debts, and your payment history. After taking all of the relevant information into account, a Debt Relief specialist can provide advice regarding the proper approach to take regarding your debt.
Just remember that it’s always a good idea to keep paying more than the minimum on your credit card debt each month. The more you pay, the quicker you can achieve debt freedom, and this can lead to a more flexible budget. Give us a call or apply online today.