Dangers of Making Minimum Payments on Your Credit Card
There are a few things you must pay attention to when you open a credit card account: the annual percentage rate (APR), credit limit, and any charges or fees. Knowing this information can help you choose the right credit card, but that is not where the work stops. You may get approved for a particular spending limit that can increase or decrease depending on your spending and payment habits.
A large majority of credit card companies make the minimum monthly required payment two percent of your balance. This means that as your balance decreases or increases, your minimum required payment follows suit. Though, you should keep in mind that no matter what your balance is, it never helps to only make minimum payments. Here’s why.
Extended Repayment Period
Depending on the specific terms you agreed to for your credit card, the credit card company may have offered an interest-free period. During this time, you will not accrue any interest on any charges as long as that period lasts. After that period is over, your APR will immediately kick in. If you fail to pay off your balance during that grace period, it will start to accrue interest. Making minimum payments from here on out can ultimately lead to you paying more in interest than your original balance.
Possible Debt Issues
The only time it would make sense to make minimum payments for any period is if you are managing several streams of debt simultaneously. Finance experts say that you should make the minimum payments on the accounts with the lowest APR and pay the most on the account with the highest APR. This way, although you will be carrying a balance on those other accounts, it will cost you less in the long-run.
When you make a minimum payment, it tends to start a trend. You become comfortable over time and don’t realize how much it is increasing your repayment amount. In the event an emergency presents itself where immediate funds are needed, you may no longer be able to afford that minimum payment, potentially causing you to miss one or multiple due dates.
This can snowball into a more significant issue and cause your debt to go into collections. By now, submitting a payment is no longer an option, and you’ll start to receive endless calls from debt collectors seeking payment. You must now acquire an attorney who can put an end to these calls. Jibrael is that attorney. As an experienced FDCPA attorney at the Law Offices of Jibrael S. Hindi, he can call out creditors on their harassing debt collection practices and get you paid. Contact us today for a free consultation. You don’t pay a penny until Jibrael wins for you.