Making Minimum Payments on Credit Cards Will Cost You in the Long Run
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The balancing act of credit card bills, mortgage payments, student loan payments, and car payments is something we’re all familiar with. Sometimes, it’s all too easy to get caught up in making only the minimum payments.
There’s good and bad news here. The good news: Your credit report does not indicate whether you’re making your credit card payments in full or only the minimum payments.
The bad news: If you make only the minimum payments, you’ll end up paying more in interest over time. You can see exactly how much more you’ll end up paying by taking a look at your monthly credit card statements. Since the enactment of the Credit Card Act of 2009, credit card companies are required to show you how long it will take you to pay off your balance and what you will pay in interest over time.
How Payments Appear on Your Credit Report
Let’s take another look at how payments appear on your credit report.
Different creditors have different policies for how they report your information, but revolving accounts, like your credit cards, will usually show the same information:
As long as you make the minimum payment and you make it on time, then it will be reflected on your credit report as an on-time payment for that month.
Now, if you’re making only the minimum payments every month, you likely don’t have a lot of available credit. And, if you have several credit accounts that are charged to the limit, on-time payments aren’t the only cure. You’ll still need to tackle how much debt you have and lower your ratio of debt to available credit. (If you want to understand better how your credit score is calculated, take a look at some of our past blogs.)
A Strategy for Paying Off Credit Card Debt
When it comes to paying off your debt, you have to decide on a strategy that works best for you. Paying off small debts first or tackling larger debts with higher interest rates, using online budgeting sites and software, seeking the help of a reputable consumer credit counseling agency, or using do-it-yourself products like Equifax’s Debt Wise™ to help you tackle your debt more efficiently and effectively. Unlike similar products, Debt Wise is powered by the information in your Equifax Credit Report and allows users to create a personalized debt payment plan that shows you how to pay off your debt faster—the average subscriber can save over $30,000 in interest and get out of debt 15 years quicker by following their personalized plan.
Making only the minimum payments can make you feel like you’re buried under interest payments and rising fees. But remember, paying down your debt is a process—it took you a while to get in debt, so it’ll take some time to get out of debt too. If you have a couple of small balances that you can tackle right away, go ahead and pay them off—the satisfaction of being done with those accounts will help fuel your journey to becoming debt free.
What’s your plan for tackling your credit card debt?
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