You should always pay at least the minimum payment on your credit card.
There’s no penalty for paying more than the minimum amount you’re better off paying above the minimum (or even better, paying the card off in full) if you can afford it.
Here are some real numbers to help you understand how it works:
Imagine you have a credit card with a $1,000 balance, a 20% interest rate, and a $25 minimum monthly payment.
- Paying the $25 minimum: It’ll take about four years to pay off, and you’ll end up paying over $500 in interest.
- Paying $50 a month: You’ll pay off your balance in just over two years, with about $270 in interest.
- Paying $100 a month: You’ll clear the balance in less than a year, with only about $130 in interest.
- Pay it off in full: If you pay off the entire balance at once, you don’t have to worry about any interest! What you would have paid stays in your pocket instead of going to the credit card company.
As you can see, there’s no problem with paying more than the minimum balance, it can even help you improve your credit scores since it’ll lower your credit utilization rate (a major factor in your credit scores).
But, you can run into trouble if you pay less than the minimum or pay nothing at all. Falling short on payments can lead to penalties like late fees, additional interest charges, and a hit to your credit score.
If you consistently miss payments, you might face a penalty APR, higher interest rates, or even have your account go to collections.
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