Your credit card minimum payment amount appears at the top of each monthly credit card statement you receive along with your new or current balance.
Typically, the credit card minimum payment is approximately 3% of the outstanding credit card balance, but there may be a minimum of $25.
Should I Pay More Than the Credit Card Minimum Payment?
It's almost always a good idea to pay more than the minimum on your credit card debt for three reasons:
1. You Save Money
Keeping a balance on a credit card account suggests that the consumer may be spending more money than what their budget would allow.
Consequently, making credit card minimum payments can keep the credit card account in good standing, but this is usually an expensive way to manage the account. Why? Because the balance at the end of every month will accrue interest, making it even more difficult to pay off your balance.
2. You Pay off Your Credit Card Balances Faster
When you only make the minimum payment, it can take a long time to pay off your balance completely.
For example, if you have a $5000 credit card balance, that has an 18.9% interest rate, making a minimum monthly credit card payment of $200 would add thousands of dollars to your total credit card bill.
A regular $200 monthly minimum payment, for instance would take almost three years to pay off completely (33 months to be exact) and you'd wind up paying an additional $1410.23 in interest on that $5000 balance.
If you pay $460.54 each month towards that same card, you'll pay off the entire balance in a year and pay only $529.69 in interest, saving yourself $880.54.
3. You Reduce Your Credit Utilization Ratio and Likely Improve Your Credit Scores
Paying more than the minimum will reduce your credit utilization ratio—the ratio of your credit card balances to credit limits. (Credit utilization ratio makes up approximately 30% of your overall credit score.)
In addition to reducing your total utilization ratio as much as possible, it's wise to always keep your total ratio and the ratio for each credit line below 30% if possible. That's because it isn't the total amount of debt that matters, but the percentage of available credit that you're currently using that really matters.
5 Strategies for Paying More Than the Minimum Credit Card Payment
To put your accelerated credit card payment plan in place, try these five card-payment tips:
1. Determine Your Overall Credit Card Amount Due
Knowing where you stand with your credit card debt is job one when making card debt payments. Check your statement, note your total amount owed, and start calculating how much more you can afford to pay each month in excess of your minimum card payment.
Also factor in other debts you have—like a mortgage or auto loan_and household costs like groceries, utilities, and phone and internet bills. Next, compare your debt owed to your monthly income and see how much extra you have to pay more than the minimum payment on your credit card bill. If money is tight, look for ways to cut back on spending, like curbing dinners out.
2. Stick to a Budget and Don't Add More Debt to Your Credit Card
Put a lid on spending while you focus on increasing your monthly credit card payments. By creating a budget you can identify areas where you can cut spending to help put more money toward your debt.
By limiting or even eliminating additional debt on your card, you'll keep the total amount owed on your credit card in place, and thus make it easier (and faster) to pay down your card debt with higher monthly payments.
3. Take the "Avalanche" Approach
If there's extra money after your budget review, a debt avalanche payment approach can help pay more than your minimum credit card payments. The goal is straightforward—pay down the credit cards you own that have the highest annual percentage rate (APR) first.
Once the credit card with the highest rate is paid off, move to the credit card with the next-highest APR, and start paying that off as aggressively as your household budget allows. By eliminating the highest credit card interest rates, you're saving money by slashing the amount of interest payments you're accruing.
4. Build a "Snowball" Method
The snowball method is akin to the avalanche approach—but with a twist. Instead of focusing on addressing the cards with the highest interest rates, focus your attention on your credit card with the lowest balance—pay that off first while making minimum payments on your other credit cards.
Once that first card is paid down, move on to the next card, and pay that down, repeating the pattern until all your credit card debt is eliminated.
5. Switch to a Debit Card (If Necessary)
While you're paying down high credit card debt, keep your card balance down by using a debit card for necessary purchases. With a debit card, you'll likely be more careful about spending money when you know it leaves your bank account immediately.
On the downside, spending too much with a debit card can derail the best-laid plans to increase those minimum credit card payments—so keep a hard limit on debit card spending, too.
Think Big on Credit Card Payments
When it comes to making your monthly credit card payments, don't think minimum—instead, 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 credit card interest charges, and the sooner you'll likely see you credit scores climb.
Let's face it—if 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 payments—and maximizing the benefits of doing so, too.
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 (NFCC) on their website.
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This article was originally published on March 7, 2018, and has been updated.