Making minimum credit card payments: Good idea, or bad?

Credit Optimal

Is Making minimum credit card payments a good idea? Let's find out in this article.

When it comes to clearing credit card balances, it can be tempting to pay the bottom threshold of the amount due on your credit card bill.

Typically, there are three amounts you can pay when you receive your credit card bill: the current balance, statement balance, and minimum due. The minimum payment is the lowest threshold of the amount you can make to keep your account in good working condition. At the same time, the current balance is the cumulative balance of your latest bill with the addition of any new charges.

Statement balance, on the other hand, is the cumulative balance in your account for that specific billing cycle.

Financial experts recommend that you make all payments in full at the end of every month, but there are instances when your financial obligations wouldn't allow you to complete the payments.

One of the top reasons you should avoid making minimum payments is the possibility of getting trapped in a debt cycle where you continually strive to hit the bottom threshold, which might make you adopt a habit of delinquency.

Even if you have resolved to stop using your credit card, making the minimum payment will lower the outstanding balance in the current month. However, continually making payment for this minimum amount would not reduce your outstanding amount.

This scenario may also increase your debt through the revolving credit facility provided by the credit card. In such a case, clearing the bottom threshold only, which is about 5% of the whole amount in the bill, would make you obligated to re-pay the outstanding amount to the loan issuer.

While there isn't a fixed period to clear the payment – you can make any amount of payment at any time – the interest on the outstanding balance will get levied every day.

Credit card issuers have various approaches when making payments, but there are some fundamental concepts that you need to comprehend.