One of the most attractive things about a credit card is that you have the convenience of paying just a small amount of your balance each month until the rest is fully repaid. You may be tempted to take advantage of this convenience and use your money for other purposes. While making the minimum payment easier, it usually costs a lot more in the long run. Here are a few reasons why you need to bite the bullet and pay more than the minimum on your credit card.
Save money on interest
If you make the minimum payment, you end up paying more in financing costs if you get your credit paid faster by making larger payments. You could save hundreds, maybe even thousands of dollars in interest just by increasing your monthly credit card payments.
For example, if you have a $ 2,000 balance at 14% April, the minimum payment of $ 1,833.24 in interest will cost. If you instead send $ 100 a month and make no future expense, you will only pay $ 290.77 in interest.
Pay the balance off sooner
Not only will it count you to make more of the minimum payment, it will also take you longer to fully pay your balance.
For example, it would take more than 14 years to make a $ 2,000 credit card balance (at 14% APR) if you made minimal payments. On the other hand, sending $ 100 a month would consistently allow you to pay the balance in just under two years (again, assuming you are not making future cartoons on the card and your APR is not changing).
Increase your credit score
Credit Usage – The ratio of your credit card balance to your credit limit – 30% of your credit score. If your credit card balance is high in relation to your credit limit, it will cost valuable credit points. A low credit score can make it more difficult to qualify for credit cards and loans.
Minimum payments just lower the balance, one small amount at a time. So if you have a high load, it will take several months, maybe even years, to reduce the balance and reduce the load. Bringing your balance down faster by paying more than the minimum will help improve your credit score.
Get ready for a mortgage
If you are planning to buy a home or make another major loan purchase in the near future, you will likely need to pay off some debts to qualify for a loan or at least to qualify for a competitive interest rate.
Minimum payments won’t card high credit balances quickly enough. Raise your credit card payments before you make an application for a large loan.
Increase your available credit
Your credit cards are useless if you don’t have a credit available because your credit balance is so high. And if the balance slowly sinks because you only pay the minimum, it will take a while before you can use your credit cards again. Pay your scales quickly to keep your credit limit accessible.