There are options for credit card debt repayment. You can pay the balance off in full, pay the minimum payment or choose a payment that is between these two extremes. The minimum payment is the lowest payment that the bank is willing to accept for the month. When it comes to choosing the minimum payment, there are pros and cons to consider.
Length of debt repayment
If you only make the minimum payment on your credit card bill, it will take longer for you to pay the bill in full. This means extending your length of debt repayment. The longer you are paying on the bill, the more interest you are stacking up. This is can have bad financial consequences, especially if you have a high interest rate. You could add hundreds or thousands of pounds onto your bill by paying only the minimum payment on each bill. This will make it harder to become debt-free.
Paying all of your bills
If you have fewer funds than you anticipated for a month, you can use the minimum payment option to make sure that you have enough money to pay all of your bills. The trouble some people run into is that they pay only the minimum payment and then decide that they have the budget to take on more debt. They are then making only the minimum payment on several credit cards.
Alarming your bank
If you use the minimum payment option frequently, you can scare your bank and force it to lower your current limit. They may also close your account and demand immediate payment before you get into a worse financial situation. This is because making only the minimum payment tells your bank that you don’t have the funds to pay more. This worries them that you will soon not pay your bill at all as your financial situation worsens. You want to avoid this as it can lead to serious consequences.
A useful tool
The minimum payment should be used as a tool when you need flexibility due to an unstable income or other financial emergency. When you have the funds to pay more, you should do so to avoid the negative consequences that the minimum payment can produce.