Minimum Payments
What are Credit Cards
A credit card is literally a small plastic card that a person applies for and is usually asked to present financial documents and the application is processed. For someone who has a good credit history, the credit line or the amount granted to a person when the credit card is given is usually big, because the person’s capacity to pay is already established.
Once a credit card is given and a certain credit line is granted to a person, that person can go to different merchants and shop for goods and pay for services using the credit card. Once a month, the credit card holder receives a billing statement itemizing the goods or services that were purchased and were charged to the card. The credit card holder needs to settle the bill on or before the stated due date.
Billing
The credit card holder’s monthly statement arrives to the mailing address that was specified in the credit card holder’s application form. The bill usually itemizes the purchases charged to the card and also includes any interest rates, fees or penalties, minimum payments, and the total amount that the credit card holder needs to pay.
What are Minimum Payments?
Minimum payments are part of the customer’s billing statement and this is defined as the smallest amount that the customer can pay in the given billing cycle. Minimum payments are usually determined by a certain percentage against the total amount due. These minimum payments are even lower than the monthly amount due and credit card holders who are short of cash usually opt to pay minimum payments instead of the monthly amount due.
An example of how minimum payments are computed is as follows. For example, the credit card company charges an interest rate on minimum payments as 2.5%, and if the total outstanding balance on the credit card is $10,000 then the minimum amount due to prevent the account from being delinquent and accruing late fees is $250.
Some credit card companies have a set minimum payment like $100 for example, or 2.5% of the total outstanding balance. The credit card holder will be charged whichever the higher amount is between these 2 figures.
Minimum Payments or Monthly Dues?
If the credit card holder’s goal is to eliminate debt, then one should pay off the monthly amount due on or before the due date so that the balance does not get charged interest rates that will be billed to the credit card holder in the following month.
Since there could be unforeseen emergencies in the future like a relative or a child being sick, some credit card holders may not have enough cash on hand to pay the monthly amount due and may just settle to make minimum payments. Making minimum payments every month is a cycle any credit card holder should not fall into – because the remaining balance will continuously accrue interest that will be added onto the credit card holder’s billing statements. Try to make the monthly payments and see your total outstanding balance diminish.