Obviously, if your credit card company tells you that you can spend $25,000 any time you want and only pay them back $25 each month, then you should take them up on that, right? The simple answer is never do that. Join us as we bust myths behind minimum payments on your credit card.
Myth #1: If I carry over a balance on my credit card, that’s all I owe back.
Credit card issuers will charge you interest on any balance remaining after you make your credit card minimum payment. There are no if’s, and’s, or but’s about it. So just paying the minimum payment and then carrying over a balance to the next month means you’ll end up paying more over time.
For example, if you spent $1,000 on your credit card with a 20% interest rate and only made the minimum payment every month, it would take you 11 years to pay it off and you’d pay $1,990 instead of only the $1,000 you actually spent.
Myth #2: Only making the minimum payment won’t hurt my credit score
Of all the deceptions, this one is the biggest. Yes, you will still have on-time payment history contributing to your credit history and improving your credit score. BUT, you will also have higher credit utilization because you have a higher outstanding balance relative to your credit limit. Also, if you carry over an outstanding balance, the overall debt to your name increases which factors into your credit score. Higher credit utilization and higher outstanding debt can lead to a lower credit score. You’ve been warned.
Myth #3: By only making the minimum payment, I can spend more money on things I want
Welllll, not exactly. Yes, you won’t have paid off your entire balance so you’ll technically have more money in your savings or checking account in the near-term. But since you’ll end up paying so much more in interest over time, you’re still net negative. And also, if you have more than one credit card, another credit card issuer might see your credit utilization ticking up and actually lowering your credit limit for the card you have with them - meaning less money to spend on credit.
You do you, but please pay more than the minimum if you can afford it
Obviously, there are moments and situations where a minimum payment is necessary due to unexpected expenses or life events. But let that be the exception and make it a rule to not carry over a balance on your credit cards if you can. You’ll save yourself money in the long run and won’t risk hurting your credit score that way. Download the Peach app to see how much interest you might end up paying if you only made the minimum payment on your credit cards.
Peach out ✌️