Think Big On Credit Card Payments
When it comes to making your monthly credit card payments, don’t think minimuminstead, think maximum.
The more money you steer into your monthly credit card payments, the sooner you’ll pay off your balance, and the sooner you’ll eliminate costly charges, and the sooner you’ll likely see you credit scores climb.
Let’s face itif you’re only paying the minimum amount every month on your credit card bill, it is likely holding you back financially. Turn that scenario around by leveraging the above tips, and start maximizing your credit card paymentsand maximizing the benefits of doing so, too.
How Can I Pay Off My Credit Card Debt
If you are dealing with a single credit card debt and can afford to make some payments, there are many different things you can do to pay off your credit card. The top 4 things to remember are:
Pay it back gradually
Try to pay at least the minimum payment if you can. If you dont, the company will charge a fee on top of interest, your debt will increase and your credit rating might get worse. Pay something rather than nothing.
Pay a bit more than the minimum if you can. This means youll clear the debt sooner and pay less interest overall. Use thisclearing your credit card calculatorto see how paying more than the minimum will help you pay off your debt faster.
Plan your spending
Make a budget plan. You need to know how much you can afford to pay off your debt. Use our free My Budget tool to help you. You may have to get used to not using the card and making payments. So be prepared to make some cutbacks for a while as you take back financial control.
Set up a direct debit so you dont miss paymentsor pay later than the due date. This will stop you from being chargedlate payment fees.
Check if youre paying for payment protection insurance. Decide if you need this and if it is worth the amount you are paying for it.
Change how you use your credit card
Stop using your card. Dont buy anything more on your credit card if you can avoid it. This will mean you can clear the debt sooner.
Ask your credit card company for a repayment plan
They may be willing to:
Additional Options For Paying Off Credit Card Debt
If you are finding yourself unable to make even minimum payments, contact your credit card issuer and see what options they may have. It’s much better to get with them before falling behind, as late payments or collections can negatively impact your credit scores and make it difficult to get credit in the future.
You may also want to speak to a credit counselor or consider a debt consolidation loan. You can get help and listings for certified credit counselors from the National Foundation for Credit Counseling on their website.
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How To Use A Credit Card To Earn Cash Back And Rewards
Earning rewards from a credit card is the fun part. But first, you should consider what your top spending categories are, then pick a card that will provide the best returns for you. Everyone’s spending habits are different some people may spend a lot on travel, while others only spend on groceries or takeout.
Formally Apply For The Loan
Once you’ve chosen the right personal loan offer for your needs, you’ll need to fill out a formal personal loan application through the lender. This requires a hard credit inquiry, which will temporarily lower your credit score.
If you’re approved, the personal loan funds may be deposited directly into your checking account as soon as the next business day. You can then use the money to pay off your credit card balances to zero. Be careful not to accumulate new credit card debt while you’re repaying your personal loan.
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Percent Of The Balance
Some credit card issuers calculate the minimum payment as a straight percentage of the balance at the end of your billing cycle. This percentage is likely to be higher than in the above scenario, maybe between 2% and 5%, and it will be applied toward both your principal and interest charges. So again, if you had a $1,000 balance and your minimum payment was calculated at 2% of that balance, it would be $20.
Using A Credit Card To Pay Medical Bills
Medical bills can be overwhelmingly expensive, especially if you’re uninsured. If you’re having trouble paying your medical bills, negotiate an agreement with the hospital or other company to whom you owe money. Don’t add to your bills and stress by adding exorbitant credit card interest rates onto them. You should also go through your medical bills a second or third time, making sure they are accurate and you understand all the charges.
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Which Approach Is Best For You
If you want to protect your credit rating and save the most money possible on monthly bills, paying off your debt ASAP is the best approach to lowering your credit card payments.
Both debt consolidation and balance transfers can help with the payoff process by lowering interest costs, and sometimes monthly bills. If none of these are viable options and your credit card balances have gotten too high for you to pay, you may need to consider debt settlement.
To decide what’s best for you, you’ll need to take into account your current financial situation, your credit score, the cash you have available to pay off your debt, and your goals for the future.
Minimum Payments And Deferrals During Covid
The profound impact COVID-19 has had on the economy and peopleâs finances has made meeting credit card minimum payments more difficult than ever for many Canadians. And with cash tight and incomes lost, some households may be more reliant on credit â resulting in larger balances, and in turn, larger minimum payments.
Banks have stepped up to offer a temporary solution by providing minimum payment deferrals for those facing new financial hardships brought on by the pandemic.
Instead of owing a minimum payment at the end of your next 30-day billing cycle, payment deferrals let you postpone your minimum payment to a later date without the usual consequences like late fees or higher interest rates.
While policies do vary by bank â i.e. some offer deferrals for one month while others offer up to six â in every case, you must receive approval to use a deferral first. In short: donât start skipping minimum payments until you have the express consent of your bank. Most banks have made it easy to inquire for a deferral and a request can be sent either through your online banking profile or by contacting your card issuer over the phone.
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Know Your Payment Policies
Missing payments will not make you popular with card companies, but it doesnt mean you should be a target for abuse or harassment. The , was passed to give consumers some protection in both of those areas.
If you decide to put your card away while trying to catch up, the card company cant penalize you by assessing an inactivity fee.
Reducing Credit Card Bills Using A Debt Consolidation Loan
It’s often possible to reduce monthly payments on credit cards by using a personal loan to refinance the debt. If you have multiple credit cards, you could also use one personal loan to pay them all off, thereby consolidating your debt and ending up with just one monthly payment instead of several.
The interest rates on personal loans are often lower than what most credit cards charge. So, if you are able to qualify for a personal loan at a competitive rate, you could significantly reduce interest costs, monthly payments, and total repayment costs. You’ll also have a set payoff schedule with a personal loan, which means there will be a definite date by which you’ll be done with debt payments for good.
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Work With Your Creditors
Reach out to your creditors to explain your situation. A credit card issuer may be willing to negotiate payment terms or offer a hardship program, especially if youre a longtime customer with a good track record of payments.
If your issuer offers a hardship program, it may provide relief when circumstances beyond your control like unemployment or illness impact your ability to manage payments. Whether you negotiate with your issuer or accept the terms of a hardship program, either option could lead to more affordable interest rates or waived fees, depending on the issuer.
These small changes might be just enough to help you get a handle on your debt, and the worst that can happen is they say no.
Be Careful How You Use Your Cards
The information below applies to all your credit cards:
- Make at least the minimum repayment every month, even if you have a 0% deal. Otherwise, youll pay penalties and could lose your 0% deal. But pay as much as you can to stop the debts mounting up.
- Set up a Direct Debit to make sure you never miss a payment. You can set it up for any amount you want, but make sure its for more than the minimum repayment.
- Check for any important changes in every statement and letter your lender sends you, such as an increase in your interest rate. Also check your statements to make sure all the spending is definitely yours.
- Dont use your card for cash withdrawals or credit card cheques. Youll be charged fees and higher interest for the whole period until you pay it off.
- If you have a 0% balance transfer credit card, avoid spending on it. Any purchases you make will usually not be included in the 0% deal offer. So youll be paying interest on those purchases if you dont pay them off in full by the end of the month.
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How To Pay Off Your Remaining Card Debt
Here is how I would suggest you begin. Take a hard look at:
- The money you have now
- Your post-retirement goals
- The expenses you will continue to have in retirement
If you cut your card balances in half as you are suggesting, you are also going to need to determine how much you can afford to pay every month to tackle the remaining balance. This will need to be more than the minimum due if you are going to make any real progress.
Once you have that number, plug it into your monthly spending plan as a fixed cost. Yes, I think you need a monthly spending plan or budget. What that means is that if you decide you can afford to pay $300 a month, you need to pay $300 every month.
The sneaky thing about minimum payments is just what I said in the beginning. As your balance goes down, so does your minimum payment. You need to ignore that and stick to paying a set amount every month.
Also, this kind of goes without saying, but Im going to say it anyway you must stop using your cards as extra income. What I mean is that if you use your new card to, for instance, fill up your car one week at a cost of $40, then you need to pay off the $40 charge at the end of the billing cycle. No fudging!
How Paying Only The Credit Card Minimum Payment Costs You More
Keep in mind that if you pay only the minimum payment each month, itll take much longer to pay off your credit card balance.
Thats because a lot of cards come with high interest rates. Paying only the minimum will cause you to pay more in interest and extend the term of your debt, according to Bruce McClary at National Federation for Credit Counseling .
For example, if you have a credit card balance of $7,800 with an interest rate of 15% and you make a 3% minimum payment of $234 each month, it would take 44 months to repay the debt entirely plus youd pay a staggering $2,353 in interest.
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What If I Miss A Payment
When you fail to pay at least the minimum amount, or miss a payment entirely, there are several negative consequences depending on the type of late payment. First, you may be liable for the payment of a late fee. In addition, many credit card issuers will impose a higher, penalty interest rate.
When you miss a payment, you will also continue to incur interest on your average daily balance, which will be higher than it would have been if you had made the minimum payment. Additionally, your late payment may be reported to the consumer credit bureaus, which could hurt your credit history and lower your credit score.
Fortunately, there are several ways that you can avoid making late payments. You can configure email and text alerts to notify you when your payment is due. You also can create automatic payments to ensure that you always pay at least the minimum amount, and that your payment is received on time.
If You Have A High Credit Card Balance Paying Only The Minimum Payment May Be Tempting
Unfortunately, credit card debt can snowball easily. Emergencies can pop up, like car repairs and vet visits. And now youre carrying a balance on your card. So, what happens if you only pay the credit card minimum payment?
Linda Sherry, director of national priorities at Consumer Action explains that a minimum payment on a credit card is the least amount you must pay by the due date to avoid a late fee.
While paying less than your full balance may save you money this month, it costs you more in the long run.
If you pay the credit card minimum payment, you wont have to pay a late fee. But youll still have to pay interest on the balance you didnt pay.
And credit card interest rates run high: According to December 2020 data from CreditCards.com, the national average credit card APR was 16.05%. If you continue to make minimum payments, the compounding interest can make it difficult to pay off your credit card debt.
Sherry says, Youll pay more interest the longer you make minimum payments because your balance is still subject to finance charges until its paid off.
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Does Making Minimum Payments Affect My Credit Report And Score
When it comes to credit scores, each of the major credit bureausâEquifaxÂ®, ExperianÂ® and TransunionÂ®âhas its own scoring model. But the more on-time payments you make, the better thatâs likely to be for your credit scoreâno matter the scoring model.
Something else to consider: If youâre making only minimum payments, it may take longer to lower your balance and âhow much of your available credit youâre using. And your credit utilization ratio is an important factor in determining your credit score. The lower your credit utilization ratio, the better.
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How Is A Minimum Payment Calculated
Your minimum payment is calculated as a small percentage of your total credit card balance or at fixed dollar value whichever is greater. If your credit card balance is $1,000 or more, your minimum payment will likely be around 2% of your total balance. On the other hand, if you owe less money, youll probably be charged a flat fee around $20.
Heres A Guide On How To Reduce Interest On A Credit Card
However, credit cards donât come without costs and mandatory fees. And, if you misuse them, you can face multiple â and expensive â repercussions. One of these repercussions is higher interest rates.
Continue reading to understand what credit card interest rates are, how theyâre calculated, what a good interest rate looks like, as well as to learn how to reduce or maintain lower interest rates.
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How Paying More Than Your Minimum Monthly Amount Benefits You
Because minimum payments are usually calculated as a percentage of what youve borrowed but not yet repaid, they get smaller as you get closer to paying off what you owe. This means it can take a long time to clear your balance.
For example, on a card with 19.9% annual interest rate, the minimum payment in the first month on a balance of £3,000 would be around £75 .
However, in the last few months it would only be a few pounds. Just because the minimum payments are small doesnt mean you should consider clearing your balance less urgent though.
For example, in this case clearing the total balance and interest would take 27 years and 8 months, and cost you £4,376 in interest. However, paying a fixed amount of £75 per month would clear the balance in 5 years and 3 months, and cost just £1,662 in interest.