If you are stuck paying the minimum, it might be better if you just consolidate credit card debts. According to reports, more than half of both men and women carry a balance over to the next billing cycle. To make things worse, 38% of men and 42% of women pay only the minimum of their credit card balances.
Using a credit card is not so bad. But if you cannot pay off your balance in full when the billing statement comes, that can lead to a lot of problems. And if you are content to just paying off the minimum payment requirement, you will soon find yourself in a lot of trouble. If you think that you can no longer pay more than the minimum, it might be better if you just opt to consolidate credit card debts.
Effects of paying only the minimum amount
There are a lot of negative effects if you stick to the minimum payment requirement of your credit card balance. Here are some of the most destructive ones.
It will increase the overall debt
First of all, and probably the most important, is that it will increase the overall debt that you owe. Your credit card debt increases because the finance charge is added to the balance that is carried over to the next billing cycle. The finance charge is based on the interest rate of your credit cards. The higher the interest on your credit account, the higher the amount that will be added to the balance after the finance charge. This is how you will end up with mountains of debt.
It keeps you in debt longer
Another negative effect of paying only the minimum requirement is it will keep you in debt longer. If you look at a minimum payment calculator, it will take you more than a decade or even decades to complete all your payments. For instance, if you have $3,000 worth of credit card debts with an interest of 17%, paying only the minimum amount would mean taking 126 months to completely pay it off. And this is with the assumption that you will not add any debt to your current balance. If you owe more and if it has a higher balance, you might be about to retire and still be paying off the same credit account.
It increases the chance of being delinquent
If you are in debt longer because you stick to the minimum payment, there is always a higher chance of being delinquent. Sometimes, you can only keep up the discipline of paying off your debts religiously. When you start acting on milestones like getting married, buying your own house, or having kids, your priorities will start to change. Soon, paying for the credit card debt will start to feel less of a priority. You might end up skipping on your payments. While reports reveal that the delinquency rate is not so bad compared to back in 2015, sticking to the minimum amount might change all that.
It might have a negative effect on your credit score
When you start becoming delinquent that can have an effect on your credit score. Not only that, if your balance stays high for a long time, it might affect your credit utilization rate. When that happens, you can really expect your credit score to go down. If you have plans of applying for a mortgage to pay for your own house, you might have to delay that until you have paid off your credit card balance. Better yet, you might want to consolidate credit card debts to start paying it off.
It keeps you feeling stressed
There is nothing like being in debt to make you feel really stressed. This is especially true if you have limited finances. It can get very stressful if you know that you have so little resources and so many payables. The high-interest of credit card debts will also make you feel anxious. After all, it can quickly make your balance grow. So if you want to live a more peaceful life, you might want to get rid of all your debts.
Why consolidating credit card debts is better
If you are stuck paying the minimum requirement of your credit card debts, you need to do something about it. You cannot just let it ruin your life and financial future slowly. Believe it or not, credit card debt has that power. So to be proactive about your finances, you need to consolidate credit card debts.
Here are the benefits of doing this.
You can get a lower interest rate
First of all, it gives you the chance to get a lower interest rate. If the problem started recently and you have only been paying the minimum a couple of times, there is a high chance that you still have a good credit score. This will help you get a lower interest rate on a debt consolidation loan. Generally, a loan has a lower interest rate than credit cards. If you can get approval for a loan that can cover all your high-interest credit card debts, you might be able to save a lot of money on the overall amount that you will pay.
Or if you use a 0% interest balance transfer card, you can enjoy paying no interest on the debt for a certain period. This will really be beneficial if you can pay off the whole debt before the promo period ends.
You can lower your monthly payments
Another benefit when you consolidate credit card debts is its ability to give you a lower monthly payment. This will allow you to consolidate debt even if you feel like you are broke. You can simply choose a loan with a smaller monthly due date. You can discuss this with the lender before the loan is approved. This way, it is clear how much you can comfortably pay off each month.
You have a more definite repayment plan
Finally, when you consolidate credit card debts, you can expect a more definite repayment plan. It will help you plan your finances better. With credit card debts, it is hard to determine when you will completely pay off your debts. The finance charge will continually change your balance. But with a loan, you know when the debt will be completely paid off. That will help make your financial future easier to plan.