Making minimum card payments is not a financial piece of advice you would hear often. In fact, a lot of financial experts and even everyday people know not to stick to the minimum payment. Though it is an option being offered by credit card lenders, consumers know better than to send in that amount. This is because minimum payments can keep you paying for a long time.
As you receive your credit card statement at the end of the month, it shows how much your total payment due is. It totals up all your purchases with corresponding details like date and even what you bought. However, monthly statements also offer you the option of sending out only a portion of that payment.
When you get used to making minimum card payments, it can lead to financial problems. This is because choosing to pay only a part of your overall bill will put in various fees and charges to your succeeding statements. This will also keep you in debt longer. On top of this, you will end up paying more in interest as the repayment drags on.
This is something you need to know especially as CNBC.com shares that households in the country average about $16,000 in credit card debt. However, life does not always turn out the way we plan it to be. As such, there are a few instances when it would be wise to do the opposite with your card payments. Here are a few of those instances where minimum card payments might do you more good.
If you are trying to focus on a particular debt payment
When you are looking at credit card debt, there is a good chance that you have more than one debt that you attend to. As with the case of dealing with multiple cards, you would have different amounts to pay up as well as interest rates to contend with. With all these, you could be taking up a payment program that can help you zero in on some of those payments.
Lansingstatejournal.com explains two of the more popular credit card payment strategies – avalanche and debt method. One deals with paying the smallest amount first while the other takes on the account with the highest rate. Both of which would benefit from minimum card payments for the rest of the cards.
As you concentrate and pay a little more on a specific credit card debt, you need to make minimum payments on the rest. For one, this keeps your account current with monthly payments. Another is that it prevents penalties in showing up the next month. It also helps you protect your credit score as you make timely payments on your cards.
If you are going through a rough time
Minimum card payments is not a smart move when everything is fine and dandy. You would want to pay down your financial obligations with your card lenders as fast as possible. This allows you to save money which would otherwise simply go to interest payments. However, that can all change when you find yourself in the middle of an emergency.
There is no way to predict the future especially when financial emergencies come your way. Apart from your reserve funds, the best thing you can do is to be flexible and make adjustments as you go along. One of these adjustments can be making minimum card payments while you are figuring out how you can move forward.
You might find yourself being let go from work and you are now looking for a replacement job. As you are doing that, you need to keep as much cash as possible in your budget. This means paying the minimum on most, if not all your financial obligations. Once you find another job and you have a steady stream of income, you can start making bigger payments.
If you are beefing up your reserve funds then minimum card payments is acceptable
As mentioned previously, there will be times when life catches you off-guard. These emergency situations can vary from losing a job to medical emergencies. It can even be major repair projects at home or simply moving to another place. There could also be times when nature decides to make a show of strength and damaging your property along the way.
Your reserve funds will serve as your lifeline and your financial cushion that can help you get through. There are a lot of theories on how much this needs to be to make a difference. As a result, you would need anywhere from three to twelve months worth of expenses for your emergency fund. As you pin down an amount, minimum card payments can help you save up.
As you make minimum payments, you can put in any extra money you have to beef up your emergency and rainy day fund. Doing so helps you handle emergencies in the future. It also keeps you current on your accounts as you go along.
If you are working on reporting identity theft
There are times you might fall victim to identity theft. As you endure the process of reporting and going through the proper channels, it would be good to make minimum card payments for the meantime. Especially so if your credit cards are the ones being investigated on. This is because you might feel that since you are contesting the amount, you have the right not to pay for it.
In a perfect world, this would be ideal but if you are still investigating and tracing back statements, it would be ideal to pay at least minimum on your card. This prevents you from accruing any penalties and charges on your succeeding statements and keeps your score intact. When you are ready, call up your lender and report the problem. You can now dispute charges on your card and even put a credit freeze on your account.
If you are running on a tight budget
Minimum card payments should be avoided at all cost. If you can, pay your total amount due at the end of the month then do so. If you can pay up even before your statements start to come in then better. However, there would be times that you are running on a pretty tight budget. You might still be reeling from a financial emergency and trying to regain some normalcy in your finances.
You might have made a big-ticket purchase such as a house or a car and trying to be very careful with your expenses for the next few months. In these instances, you can choose to simply make the minimum payment on your credit card bill. Once you get a better handle on your budget then you can start making more than just the minimum payments. You can even pay your balance in full.
Minimum card payments is not one of the most popular financial moves you will make but it does have its benefits. The idea is to have a firm understanding of your current financial situation and use the method sparingly. Once you are all set and can make more payments, then do so. Pay more than just the minimum so you can save the money that is just going to interest payments.