We will receive an incentive if you use the Amazon affiliate links in this post to purchase anything with no extra cost from your side.
Is this correct that paying off minimum instead of the full balance improves the credit score?
What is the most common minimum payment amount?
How much will minimum monthly payments on a $5000 credit card balance hurt the wallet?
If someone has a credit card debt of $5,000 and the interest rate (APR) is 20%, then the monthly interest will be $83.83 in the first month. With 2% payment of the balance plus the interest, the minimum payment becomes $5,000×0.02+$83.83=$183.83 in the first month. Note that this payment of $183.83 will only reduce the balance by $100 (2% of $5,000).
With the monthly minimum payment, the credit card holder will pay $1,973.43 in a year with a starting balance of $5,000. The balance at the end of the year will be $4,003. That is, cumulative total monthly payments of $1,973.43 will reduce the balance by $997 only in a year. 🙁 Pay credit card debt as early as possible to save the extra payments.
|Month||Balance||Interest||Minimum amount due/paid|
What is the best practice?
There had been times when I had to pay the minimum instead of a full balance payment but those were emergency situations. Unless I have emergency situations, I set up an automatic payment of the full statement balance before the due date.
Subscribe to receive notifications on our new posts.
2 thoughts on “Does carrying a balance on a credit card improve credit score?”
I always pay off the balance on my credit card at the month’s end when I get the bill. Otherwise the interest rate quickly makes it a huge amount that just piles up every month! I’m glad at the end of the post you endorse treating it like a debit card 😉
I completely agree with your strategy. Thank you for visiting and commenting. Have a wonderful weekend ahead.