What happens if I only pay the minimum on my card account?

Understand what happens in practice when you only pay the minimum bill

When dealing with credit cards, a common question many consumers ask is, “If I pay the minimum bill, what happens?” The answer to this question is fundamental to understanding how credit cards work and how to avoid unnecessary debt.

When you pay only the minimum on your credit card bill, you enter what’s called revolving credit. This means that the remaining amount on the bill will be charged the following month, with interest added.

Revolving credit is a form of credit offered by financial institutions, such as credit cards, that allows consumers to use a specific portion of credit on an ongoing basis, as long as they pay a minimum monthly amount.

The unpaid balance accrues high interest, making it an expensive option if not managed properly. It is recommended that you pay the entire balance to avoid significant financial charges.

Interest on revolving credit

Interest on revolving credit can be very high. For example, the interest rate on revolving credit reached 409.3% annually at the end of 2022. This means that when a consumer chooses to pay the minimum bill, they are at serious risk of entering a cycle of debt.

Revolving interest rates vary monthly, but are always among the highest in the market. For example, according to the Central Bank, in May 2023 the average revolving interest was 455% per annum. This represents an interest of 15.18% per month.

Additionally, revolving credit has compound interest, meaning that each month the debt increases on top of the previous month’s debt. With an interest rate of 430.5% per year, the revolving interest is 14.92% per month.

Therefore, it is important to understand that by paying only the minimum amount on your credit card bill, you will be subject to these high interest rates. This can lead to a significant increase in debt over time.

Consequences of paying the minimum bill

The following month, in addition to paying the rest of the bill, you will have to pay interest, commissions and the value of new purchases made or those already paid in installments. If your credit card bill is already overdue and you pay the minimum amount, you will not be able to avoid interest and IOF (financial transaction tax).

Paying only the minimum on your credit card bill can have several consequences, including:

• High interest: The interest rates on revolving credit are very high. For example, the interest rate on revolving credit reached 409.3% per year at the end of 2022. This means that your debt can grow quickly if you continue to pay only the minimum.

• Growing debt: Since the interest is capitalized in this way, the debt increases each month. This can lead to a debt cycle, where debt continues to grow and becomes increasingly difficult to repay.

• IOF collection: If your credit card bill is already overdue and you pay the minimum amount, you will not be able to avoid interest and IOF (financial transaction tax).

• Impact on credit score: If you continue to pay only the minimum and accumulate debt, it can negatively affect your credit score.

Therefore, it is always advisable to try to pay the full amount of your credit card bill whenever possible to avoid these consequences. If you are unable to pay the full amount, it may be best to consider other options, such as paying in installments.

Recommendations for those who pay the minimum

It is always recommended that you try to pay the full amount of your credit card bill whenever possible to avoid these high interest rates. If you are unable to pay the full amount, it may be best to consider other options, such as paying in installments.

In short, paying only the minimum on your credit card bill can lead to high interest and potential debt. I’ll say it again: it’s best to pay the full amount of the invoice whenever possible.

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Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.