Don’t Pay Only the Monthly Minimum on Your Credit Card-Part Two

Don’t Pay Only the Monthly Minimum on Your Credit Card-Part Two

You may think that when you pay on time the minimum amount due on your credit card at the end of each month, you’re being financially responsible. Think again.

In our first episode we talked about how does the long repayment works.

This episode will go in depth regarding how paying only the minimum monthly payment can cost you a huge and unnecessary amount of interest in addition to repaying the original sum.

Skyrocketing Interest

Say you’ve got an outstanding balance of $2,000 on your card. Your minimum payment would initially be $40 (2% of $2,000).

If you make only the minimum monthly payment of $40, it would take you 30 years and 10 months to pay off your balance and you would end up paying $4,931 in interest!

You would be much better off financially if you could increase your monthly payment to $100. So then, you would need only two years to pay off the balance in full and you would pay only $395 in interest!

That’s a saving of $4,535 !

So, upping your monthly payment by even a small amount can save you a whopping amount of interest.

In our final episode of this series we’ll discuss how the minimum payment is applied.

For more valuable financial advice, please visit us at prudentfinancialservices.net

Don’t Pay Only the Monthly Minimum on Your Credit Card

Don’t Pay Only the Monthly Minimum on Your Credit Card-Part One

You may think that when you pay on time the minimum amount due on your credit card at the end of each month, you’re being financially responsible.  Think again. 

True, paying the minimum on time will keep you from being hit with late fees or suffering a blow to your credit rating.  But that’s not the whole story. 

The long repayment period

Consider the following: If your credit card’s outstanding balance is $926.53 and the interest rate is 19.9% -- a widespread rate these days – then paying only the minimum required each month means it will be eight years and two months before you’ve paid off the full amount.

If your credit card’s outstanding balance is $4,797.36 and the interest rate is still 19.9%, then paying only the minimum required each month will mean it will be 42 years and one month before you’ve paid off the full amount.

It’s not just that you’ll be repaying what you borrowed on the credit for as far as you can see into the future: it’s that you’ll be paying a huge and unnecessary amount of interest in addition to repaying the original sum.

In part 2 of this series we’ll cover unnecessary interest expense and how your minimum payment is applied.

Till then for more valuable financial advice, please visit us at prudentfinancialservices.net

The Cost of Bad Credit

A good credit score is an important thing to have but it’s difficult to maintain. Living without credit or bad credit is becoming more common and most wonder what the big deal is if I have a low credit score?

Credit card payments and the level of debt have the most impact on your credit score. The information contained in your credit report is also used by many financial calculations. This means that a lender will not only view your credit score but will combine your monthly minimum payments reported by your creditors and compare it to your monthly gross income. This is known as a debt to income ratio and is as important as your credit score.

If you’re deep in debt, living paycheque to paycheque or are constantly charging things on your credit card, this will make your life extremely difficult from getting a job, your children following in the same footsteps to getting a place to live.

Here are some of the costs of living with bad credit:

1. A big consequence with having bad credit is the denial for a loan. Being denied for a credit card or being denied for a home mortgage when you need it will not only cause you to get denied but it will also be embarrassing for you and affect you emotionally.

2. Creditors and lenders will view you as a higher risk and because of this you will be paying for that through higher interest rates. Over time you’re paying a lot more than if you would have should you have had better credit.

3. When you want to rent a home or apartment, you may be refused as most landlords will check your credit prior to offering you the lease. If you have poor credit, the landlords will think you’re less likely to pay them and will refuse you.

4. If you have a history of living without credit that is good, you will require to pay a large security deposit for things such as utilities and cell phones.

5. The decisions you make will affect your children. They watch what parents do and financially and there is a great chance that they will follow suit.

6. Another big consequence that will directly impact you and your family is worry and anxiety. This kind of stress can lead to all sorts of health issues for you and even cause problems in your family life.

Poor financial decisions can ruin your credit fast so if you want to maintain an impressive credit score or you want to improve it, make your payments on time and include a little extra each month to help pay down your debt. Keep all your accounts open as an open account without a balance is more beneficial than a closed one and also don’t open any new accounts.

For more valuable tips and information, visit www.prudentcreditrepair.ca