If you can't afford to pay off your credit card debt all at once but you still want to pay off your balance, what do you do? We've established that just making the minimum payment on all your cards isn't the ideal way to tackle debt. In fact, folks who carry credit card debt are better off paying as much they can afford, ignoring the suggested minimum payment. Too often people latch on to the idea of the minimum payment, assuming that it's calculated for their benefit. If your APR is particularly high, just making the minimum payment might actually drive you deeper into debt. It will take you longer to pay off your balance, and you'll pay more interest to the credit card company in the meantime. The problem is that just making the minimum payment extends your debt repayment timeline. If you can't pay it off all at once, it's a good idea to pay as much as you can afford to pay.Ĭredit card companies tell customers about the minimum payment as a guideline to avoid extra fees and increased interest rates. If you carry a balance on your credit card, your best bet would be to pay it off all at once, as quickly as possible. How do these minimum payments work and what happens if you only make the minimum payments? I'm glad you asked. When you look at your credit card bill, you'll see both the full balance and a minimum payment. The Credit Card Minimum Payment © iStock/Justin Horrocks Your debt "revolves" from month to month. If you don't pay your balance in full by the end of the grace period, you'll be charged interest on your old balance and on new purchases. It's equal to the interest you pay on your unpaid balance for that billing period.Ĭredit cards generally give their customers a grace period, a time between the end of a billing period and the date payment is due. The financing fee is what you pay for the privilege of using the credit card. To calculate your credit card interest, card companies use the following formula:Īverage Daily Balance x Daily Periodic Rate x Number of Days in the Billing Period = Financing Fee To account for months of different lengths, credit card companies calculate interest based on what's called a Daily Periodic Rate. The interest you'll pay from month to month is roughly the APR/12. The lower your credit score, the higher the APR you'll likely be offered. The listed interest rate for your credit card rate is known as the annual percentage rate, or APR. If you don't pay your credit card bill in full, you'll be charged interest. A few big medical bills or a period of unemployment can be enough to put many people over the edge into credit card debt. Your credit score will be high and you'll be able to qualify for the best interest rates on a home mortgage. You won't have to pay any interest and you'll get the benefits that your credit card offers, like points, miles or cash back. How Credit Card Interest WorksĪs a credit card user, your best case scenario is to pay your bill in full and on time every month. Should you start with the debt that has the highest interest rate, or motivate yourself by paying of the smallest chunk of debt first? What about a balance transfer or a personal loan? The answer depends on your circumstance, but we've got the basics covered right here. Now what? How do you know which debts to pay off and when? It's complicated. If your card also comes with a purchase offer, be careful of new spending once your promotional purchase offer ends.Credit Card Calculator © iStock/RuslanDashinsky If not, you could lose any promotional rates you may have and revert to the standard rate. To get the most out of your balance transfer you should always pay at least the minimum payment on time, stay within your credit limit, and aim to pay off your balance before the offer runs out. You’ll find the amount you can transfer in ’Transfers and offers‘ in Barclaycard online servicing, and in the Barclays or Barclaycard app. The maximum amount can vary, depending on your individual credit limit and the existing balance on your Barclaycard. Just remember that you can't transfer a balance from another Barclaycard, or a store or credit card issued by the Barclays Group. There might be a fee for each transfer, but it means you can manage your credit all on one card, which could save you money on interest – and makes it much easier to keep track of your finances. When you make a balance transfer, the request can reach the other card company as quickly as the next working day.
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