Paying the minimum credit card repayment each month may seem cheaper and easier, however this is a dangerous habit that will cost you a lot of money if you continue to do so.
Many credit card customers make the mistake of taking the easy route and just paying the minimum credit card repayment each month, just as many lenders make it as difficult as possible to pay more than the minimum. Sometimes you can not set up a direct payment of more than the minimum repayment! While at the time the statement comes in making the minimum credit card payment is easier on your finances in fact in the long term it can and will cost a lot of money.
The main form of profit for lenders comes in the form of interest charges. At the end of each month a percentage of theoutstanding balance added to the overall debt. This percentage is the interest rate. The bigger the outstanding monthly balance, the more interest charges, the more the card company makes in profit. This is why the minimum repayment is very low.
All lenders want you to make regular payments, however the smaller those regular repayments are the longer it will take to repay the debt and the more profit they will make. The best way to get off the credit card debt treadmill is to stop using the cards wherever possible and repay as much as possible every month.
Making a credit card payment that is higher than the minimum will not see you penalised financially. There is no such thing as an “early repayment” fee so paying more than the minimum each month will not cost you any more than the amount you choose to repay – infact it will definitely save you money in the long run.
When we talk about the effects of compounding interest in the context of savings it is typically in a positive light. For credit card holders compounding interest also occurs. However this time it works in favour of the lenders. If you were to stop using our credit cards today, the outstanding balance will continue to compound, and overtime will increase greatly, leaving your further in debt.
Realistically the only solution to avoiding growing credit card debt, reducing the effect of the interest on your balance, and rising costs, is to make a significantly larger credit card payment, than the minimum repayment each and every month. You must learn to ignore the minimum balance on the statement and pay as much as you can afford! This is the only way to clear your balance and reduce your credit card debt.
