Why Minimum Payments Are A Bad Idea

Credit Card Statement

Just like the flowing of the tide, and the rising and the setting of the sun, your credit card statement arrives on schedule. Like many people, you may open this letter or email while covering your eyes with your fingers. Not everyone is enthused to discover what they have spent this month, and what the amount of debt they have acquired is.


Credit cards are a normal day to day function of personal finance. They can be an essential asset in managing your everyday expenses, as well as helping you make larger purchases. You aren't so reliant on your monthly paycheque. However, if you are not careful with managing how and when you use your credit card, you could discover some unintended consequences. This often happens by only making the minimum payment. There are several reasons as to why this is a ad idea, and is a practice you should endeavour to avoid.

Minimum Payment Period

Paying off debt will take much longer when you only make the minimum payment. While it can be tempting to just pay enough to ensure you are compliant with the card issuer, you should do more. Paying off the minimum requirement is effectively pushing the debt back for another month. You are not getting away with anything, only creating further problems for yourself down the line. You are extending out your repayment period. In that time, you might have amounted an increased amount of debt on your credit card. It is better to pay off as much as you can now. It will save you a headache in the future.

Interest Rates

Your interest rates will rise along with your debt. Unless you are using a 0% APR card, you will barely cover the interest rate on your credit card if you only make a minimum payment. Your interest rates will grow along with your debt, making your personal finances harder to manage into the future. To estimate your interest rate divide your card’s annual percentage rate by 12. Then multiply it by your average balance. Doing this could afford you an insight into how much more you will be paying for your credit card if you only make minimum payments.

Credit Score 

Your credit rating could take a hit if you are only making the minimum payments. As your credit card balance climbs, so does your credit utilisation ratio. This is a major factor when determining your credit score. Financial institutions want to witness customers who are able to make sufficient payments on a regular basis. The minimum payment is the lowest benchmark that you have to pay in order to keep you card provider from getting in contact. It is not the recommended payment. This means that financial institutions want you to do more.


A sufficient credit score is important for many reasons. Many employers now look for a credit score before making a job offer. When looking for an apartment to rent, your landlord will almost certainly search of your credit history. If you want to apply for a large loan such as a mortgage, your credit score will be important.

Ask For Help

If you are in financial trouble, and the minimum payment is a struggle for you, then you should seek help. It is better to make a minimum payment, than to make no payment at all. However, it is not a long term strategy. There are many things that you can do to get yourself out of the hole of personal debt. You could seek to get a credit transfer card or arrange for a personal loan to cancel your debt. Whatever, approach you take, make sure it is something that works for you.

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