Credit Card Minimum Payments: How They Are Calculated And Why You Must Overpay Them

Sometimes, people forget that the credit card does not make one richer than he or she actually is; at other times, a person may have to make large charges to a credit card in order to buy something he or she needs which is not affordable by any other means. In either case, the minimum monthly payment can be the bane of one in credit card debt if he or she does not keep in mind this important rule: you must always pay more than the minimum payment.  This article will explain the importance of this rule.  

In an interest-free world, debt of any kind would be a non-issue — or, at least, much less of an issue than it really is. Unfortunately, this is not the world in which we all live; in fact, interest is among the primary sources of profit for credit card companies, and one of the reasons why credit cards are highly profitable for their parent companies. Interest payments on money still owed can bedevil a debtor in his or her attempts to escape from under the shadow of debt. Overpaying your minimum monthly payment is a critical concept in getting out of debt quickly and easily.

Of course, one can get out of debt by paying the minimum payment every month. However, paying the absolute minimum required leads to an extension of the time taken to pay off your debt; because of interest, extending the payments over a longer period of time means that you actually have to pay more than you would otherwise. In fact, one may have to pay a sum of up to three times the original amount due! By overpaying your minimum payment, you can easily avoid this pitfall.


One way of accomplishing this is to pay a constant amount each month. As the amount of your debt decreases, your minimum payments may decrease, resulting in an acceleration of the pace at which you pay off your debt. If you choose an amount such that your payment is more than the minimum payment from the start (or, when you start applying this method), than the amount of your debt will only disappear more speedily.

Having to pay off the debt for multiple credit cards can complicate one’s life. When managing the credit card debt due on multiple cards, is important to be aware of the interest rate for each card, and also the terms and conditions associated with each card. Generally, you should distribute your payments such that the card with the highest interest rate receives the greatest sum over its minimum payment.

As to how credit card minimum payments are calculated, there are two ways this can be done: by taking a certain percentage of the total amount due, or by dividing the amount due by a certain number of months. The method used for your particular card can be found on the information pamphlet that accompanied it (if this pamphlet hasn’t been thrown away long ago).

Other useful rules for debt reduction include:

- Never Skip a Payment
- Pay More than Your Interest
- A Balance Transfer is Not a Payment
- Be Wary of Limited Time Offers

Even if your credit card company allows you to skip a payment, it is a good idea to make the payment anyway. This is because your interest still accumulates during this month; hence, you may find that your debt has increased once you get back to making your monthly payments.

Depending on the particulars of your credit card, it may be that your finance charges are almost as large as your monthly payment.  In this case, your debt will shrink at a snails pace unless you factor in these charges and determine the amount of your payments accordingly.

A balance transfer is not a payment — that is, even if you transfer your balance on one card, you are still obliged to pay the monthly payment for the card. The proper course of action is to transfer the balance less the monthly payment, and pay the monthly payment via check.
A credit card offer may sound too good to be true, but often the favorable terms are only in effect for a limited time, perhaps the first six months. After the initial period, you may find yourself hit with much higher interest rates. Be sure that you carefully review the terms of a credit card before accepting any credit card offer.

Escaping from credit card debt may seem an onerous task; however, the simple rules outlined above can make your life much easier. Whenever you face such a situation, it is wise to take great care to be aware of the interest rates, finance charges, and other terms associated with your credit card(s). Just as it was in grade school, the one who does his or her homework gets the best results.

P Neely writes about how to start a handyman business, including how to get your handyman license and how to choose a name for a handyman business.

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