Your credit card minimum payment is one of the most important considerations when you decide which credit card to apply for and use. If you have a reasonably small unpaid balance (typically less than $ 1000), your credit card minimum payment may be a low fixed rate, usually around 10%, occasionally more. If you are like most people, this probably won’t get you out of debt very quickly, but if you can pay your balance off fairly soon, it will help you avoid late charges and a lot of hassle.
The primary reason for setting your credit card minimum payment is so that you can manage your credit score. A high credit score indicates that you are a responsible borrower. But if you carry a large amount of debt, you aren’t doing yourself any favors by carrying a high balance. High balances can lower your credit score, so paying them down as quickly as possible is a very good way to protect your credit score.
Setting your credit card minimum payment is also a way to make sure you don’t get caught in debt. If you do find yourself with a large amount of unpaid debt, don’t just ignore it. Contact your credit card company and see if they have any plans to reduce your interest rate or eliminate some of the debt. Most likely, you will get an answer that they do have such plans. In many cases, they will be able to eliminate the entire amount owed, in order to keep you from going over the credit limit.
You may also want to consider contacting your credit card issuer directly. Often, they have a program that will lower your payments if you make a certain percentage of your minimum payments. For example, if you make your minimum payments on time every month, your issuer may provide you with a $500 discount on your balance, which will reduce your debt by quite a bit. If you only make your minimum payments, however, you won’t receive any of the benefits from the program.
You should also look at the total cost to you before you make your credit card minimum payment. Sometimes, it makes more sense to pay interest on a balance and lower your monthly payment. In other cases, it makes more sense to pay off the balance in full every month. Your goal, after all, is to pay off as much debt as possible and make a minimum monthly payment that you can afford. Use the information you gather to determine which option is the best for you.
A good way to find out how much it costs you to maintain your current level of debt is to use one of the two formulas floating around the web. The first of these formulas is meant to help you budget, and the second is meant to help you determine your minimum payments and interest rates. To use either of these formulas, just plug your balance into one or both of them and then compare it to the amount you would owe if you were debt free. Enter the information into the appropriate boxes, and you will get a figure you can use.
The formula for the credit card issuer will be different than the formula for the budgeting part. To use this formula, simply divide the new balance you wish to pay off by a percentage of your minimum payments. For example, if you make twenty-five percent minimum payments, you would pay off thirty-five percent of your balance. This is the interest charges, so you’ll need to apply these percentages to your new balance and to your total debt as well.
Once you’ve determined how much you need to pay off each month, you should add up all the minimum amounts you must pay each month. Add all the minimum payments together and see what your total debt per month is. This is the maximum amount you will pay to the credit card company at any given time. If it is less than your minimum amount, you will know that you will have enough money at the end of the month to make all your minimum credit card payments. If it is more than your minimum amount, you may want to make larger payments in order to pay off the entire credit card minimum amount.