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The Consumer Law Group, P.C.

How Making Minimum Credit Card Payments Could Affect Your Credit Score

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Making Minimum Credit Card Payments Can Lead to ProblemsIf you had the money to pay off your credit card each month, you wouldn’t have needed to use credit in the first place—right? We understand why people use credit cards and we understand how hard it can be to get out of credit card debt. But when you are paying high interest rates and it is affecting your credit score, you need a plan to get out from under the debt. Rather than wasting money with a debt settlement company if the amount you owe is less than $5000, try to figure out ways to slowly pay off the debt. One tip is to pay more than the minimum amount due each month.

How Minimum Payments Cause Problems

You get your credit card bills each month and, right there on the payment coupon, it says, “Minimum Amount Due: $25.” So you write out a check for $25 and mail off the payment. After all, you don’t have much more than that in your savings account anyway. The problem with this practice is that it is not helping you get out of debt. In fact, only paying the required minimum can hurt you in the following ways:

  1. It will take much longer to pay off your debt. While paying the minimum allows you to avoid paying a late fee, it doesn’t reduce the debt you owe. In fact, the amount you owe will steadily increase due to interest charges if you only pay the minimum. By paying double the minimum, you can reduce the repayment period by half.

  2. You will pay more in interest. Even if you make the minimum payment, you will still be charged interest on the unpaid debt. If you never pay down the debt, you could end up owing more in interest than your original debt.

  3. It can lower your credit score. The closer you are to maxing out your credit cards, the higher your credit utilization ratio will be, which is factored into your credit score. A poor credit score will affect your ability to get a car loan, mortgage approval, or even rent an apartment.

Our best advice is to stop using your credit cards and start paying off as much as you can—at least double the minimum amount due. This will prevent future harassment by debt collectors and debt settlement companies.

 

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