Credit cards are a great convenience, allowing you to pay for the things you need without having to carry around a large amount of cash. But many people use their credit cards to pay for things they can’t really afford, running up debts that take a long time to pay off. That is exacerbated when you only pay the minimum amount due each month. Here are three reasons why you should pay more than the minimum on credit cards.
Save on interest charges
When you only pay the minimum amount due each month, you wind up paying much more in interest charges over the life of the debt. Most credit card companies only require you to pay about 4 to 6 percent of your balance each month, which barely covers the interest you are accruing. Even if you don’t make any other charges on the card, it can take you months or years to pay off the balance. And if you continue making purchases with the card, your debt will grow, which means you pay even more in finance charges.
Improve your credit score
One of the main factors affecting your credit score is how much debt you have relative to how much overall credit you have. You generally want to keep your debt level to a maximum of 30 percent of the available credit you have, so if you have a $10,000 limit on your cards, you don’t want to carry more than $3,000 in debt. When you are only making the minimum payment on your credit cards each month, it makes it very hard to reduce your debt level. So if your debt level stays high or increases because you continue to make purchases while only paying the minimum due, it can lower your credit score.
Keep more room on your card
Not only is it a good idea to keep your credit card balances low for the sake of your credit score, it’s also a good thing to leave some breathing room in case you need to use the card in an emergency. By paying more than than the minimum payment each month, you can help trim your balance and ensure you stay well under your credit limit so you have a source of funds in the case of an emergency.
These are just a few of the reasons to pay more than the minimum payment due on your credit card debt each month.