What is the impact of minimum payments on credit card balances?

Making only the minimum payment due on your credit card balances often leads to higher interest charges. While it may seem like a small step, it can lead to a cycle of debt that becomes increasingly difficult to break.

Here's why:

• Interest Accrual: When you only make the minimum payment, the majority of your payment goes towards interest. This means that the principal balance, or the amount you originally borrowed, remains relatively unchanged. As interest continues to accrue on the unpaid balance, your overall debt can grow exponentially.
• Extended Repayment Period: The longer you take to pay off your credit card balance, the more interest you'll end up paying. This can significantly extend the repayment period and increase the total cost of borrowing.
• Impact on Credit Score: Carrying a high balance on your credit card may negatively impact your credit score. Lenders may view a high credit utilization ratio as a risk, which can make it more difficult to obtain loans or secure favorable interest rates in the future.

To avoid these consequences, it's important to make more than the minimum payment each month. The more you can pay, the faster you'll reduce your balance and save on interest. Consider creating a budget to help you allocate more funds towards your credit card debt. Use an online credit card calculator to understand how the payment of the minimum amount due impacts your total credit card balance.