What is the minimum credit card payment and how does it work?

By | January 20, 2020

If you know what the minimum payment is, you will understand why it is not enough to pay it and how dangerous it is. The minimum credit card payment is a percentage of the total to be paid for the use of the card and the outstanding monthly fees. That percentage depends on the bank and the expense made. If you only pay the minimum, you are paying interest, the debt will be pending.

Making you pay back much more than what they lent you

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The truth is that a credit card can be a good ally to buy some high-cost products or services, although it also works for everyday things. It gets you out of trouble shopping at the supermarket or to load gasoline, in those moments when the salary is short due to other emergency commitments. However, it can also be turned into a double-edged sword if you don’t know how to control it. Faced with this, it pays to take some precautions and always pay the full bill every month. Below we will review why the minimum credit card payment is not a good option.

Minimum credit card payment: the worst decision

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Each card operator stipulates a percentage of the total invoice value for the minimum payment. Take an example of how it can impact you: Imagine that you make purchases for $ 1,000,000 with your card and the minimum payment of the month is $ 50,000, equivalent to 5% of the debt. And also, the interest rate on your card is 4.5%. If you pay the minimum, you may be thinking that you have lowered your debt to $ 950,000. but … what about the interest rate? Oh right! It is 4.5%, therefore it is $ 45,000.

Therefore, the correct calculation is that you must add the interest, which is $ 45,000, to the initial debt, and then discount the “minimum payment” of $ 50,000.

So: $ 1,000,000 + $ 45,000 – $ 5 0.000 = $ 995,000.

You barely lowered your debt by $ 5,000 and you still owe $ 995,000.

The SERNAC site in its recommendations for ordering the budget warns

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“Do not forget that the minimum payment does not reduce the amount of the debt, since in general you are only paying the interest, transforming it into a” life “debt that can be carried over a lifetime, so it will always be more convenient to pay the full installment or consolidate the debts to order the budget in a quota that is within their reach, quoting and always choosing the institution that offers the best conditions ”.

In summary, with the minimum payment you will not go into debt with the bank, but you will perpetuate your debt. It can help you if you are just going through a difficult month and do not have money, but you do not have to use it as a daily practice.

Interest rates: the villains of credit

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The interest rates of these types of financing are dangerous. Therefore, the best option is always to pay the full monthly payment or settle the total debt as soon as possible, to avoid entering a circle of indebtedness.

Conscious consumption is essential, since although credit cards are great allies in the conquest of many dreams, there must be a balance between what you earn and what you intend to spend. What makes the relationship between credit and consumer healthy are knowledge and good organization, understanding what is the minimum payment of a credit card to avoid future problems. Before listing your credit card make sure you can meet the monthly payments. You are already convinced you can find out about the requirements to apply for the card.

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