Managing your credit card can be difficult if you don’t pay the total of your monthly balance; 50% of credit card users, have been carrying a debt for two or more years, being the average household credit card debt $6,081.
Not making payments in full can quickly add up, because of interest rates and the cost their represent for your debt. Managing your personal finances, and learning what happens if you don’t pay your monthly balance, can improve your financial situation.
What are minimum payments?
The minimum payment of your card debt, is the minimum amount of money you must pay the bank to keep your credit and avoid impacting negatively your credit history. Making the minimum payments only keeps your debt active, since it only covers the interest generated during the period, the bank’s commissions and a small payment to the capital.
How does my interest rate affect me?
In your personal finances, choosing a credit card 70% of the people compare interest rates, however, as the ideal is that you pay the total of your debt, you should not worry too much about comparing rates. Choosing a credit card by the amount of interest it offers is entering the world of credit cards with the idea of paying interest, when the ideal is to pay each month the total of your debt.
If you use your credit card correctly it allows you to finance up to 50 days without having to pay interest, paying only the minimum means that you will be in the red for years.
To get a better understanding of minimum payments, NerdWallet determined how costly it can become to only make the minimum payments of your credit cards, assuming the average household credit card debt of $6,081 and an interest rate of 14.99 percent.
By only making the minimum payments, it would take up to 169 months, about 14 years, to pay off your debt, and in that period you would have spent $4,064 on accrued interest.
NerdWallet’s study also determined that to get the most out of financing yourself with a credit card, you’ll pay your debt off quickest if you add $100 to the minimum payment each month. By doing so you would pay off a $6,081 worth of credit card debt on only 45 months, which is approximately 3.5 years, only spending $1,409 on accrued interest. This is interesting as it’s a faster and cheaper way to pay off your debt, than paying two times your minimum payments.
Remember that the best way to handle your credit card and improve your personal finances, if you decide not to pay the total of your debt each month, is to make constant payments to your debt before your cutoff date. Paying $ 100.00 in addition to the minimum payment each month can save you a lot of money,
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