Pros and Cons of Making Minimum Credit Card Payments

Every credit card has a minimum payment. While each bank has a different formula for determining a cardholder's minimum payment, many of them equate to one percent of the balance plus interest and fees. There are both pros and cons of paying the minimum payment.

Staying within Your Budget
The biggest pro of paying the minimum payment on your credit card is that it allows you to stay within your budget for the month. For people on a tight budget, giving the bank extra money could mean not having enough money for another bill. As long as you are paying your minimum payment, your credit card balance should go down. It might not go down much, but you will owe less than the previous month. This is assuming you don't use the card to bring the balance back up.

Loan Length & Interest
The more you pay on your card, the faster you will pay it off. Making just the minimum payment means it will take longer to pay off your balance. This may be several months or several years. The longer you have your loan, the more money you will pay in interest. Since you will have your loan the longest by paying only the minimum payments, you will also pay the most amount of interest possible. Sometimes making just the minimum payment month after month will trigger an interest rate increase on your account. Other times, you have to miss payments in order to trigger this increase. You should check the terms of your card to learn how the minimum payment will affect you.

Raises a Red Flag
Paying only the minimum can trigger a red flag on your account, because it makes lenders think that you are in a tough financial spot. This may be a good thing or a bad thing. On the positive side, it can entice your bank to call you and work out a deal that eases your financial situation. This could include eliminating fees for a time or temporarily lowering your interest rate. On the other hand, this flag could convince your bank to lower your credit line to keep you from getting in deeper over your head.

You can use this list of pros and cons to help you decide if paying only the minimum payment on your credit cards is best for your financial situation. You need to decide whether the benefits you reap now are worth the consequences you may face in the future.