Credit cards are the modes of payments through credit system. It is a small plastic card, issued by the banks and financial authorities, which the user can use to make advance payments or for borrowing money. Whenever a person buys something on a credit card, the person becomes a debtor of that company as the company pays that bill. Credit cards charge the users an interest on the borrowed amount.
There are many benefits of credit cards, but not using them carefully can also get us in trouble. The more we spend through credit cards, the more we have to pay later. To really benefit from the credit cards, we should learn all its rules and uses. There are some rules and guidelines that should be followed, in order to have good spending habits.
When we receive a credit card statement at the end of a month or any other time, there is also an option of minimum payment. The reason people go for minimum repayments are either because they do not know its real use or because they can afford the minimum payment only.
The mechanism of credit cards is built in such a way that we find ourselves unable to pay the complete amount, and settle quickly for the minimum payment option stated. It is not until you fall into the trap by paying the minimum amount that you understand the problem you have created for yourself.
What we need to understand is what making minimum payment means, and how it work. Today in time of recession, we all find ourselves in a state where we are barely able to cover our expenses. When most of us are fighting hard to make both ends meet, the opportunity to pay a small part of the total amount due, and paying the rest in future seems to be a life saving offer. What we do not know is that by making the minimum payment, we are expanding the amount, and time of the original debt.
2. It makes the payment of the debt longer and expensive. One has to pay much more than the original debt amount because of minimum payments. One should pay as much as one can and avoid going for the minimum payment option.
3. The minimum payment is just a percentage amount of the total debt and, with time, because of interest, the total debt increases and also the amount of minimum payment increases. This way, we are only able to pay a percentage of the total debt.
If the minimum payments are delayed, a late payment fee is also added, sometimes resulting in balances, which are over the account limit.
5. If the minimum payments are delayed, you are charged more and as the interest increases, the amount of minimum payment also increases. This results in an overall increase in your financial charges. It is not a way to improve the financial conditions; instead, it worsens your financial conditions.
This way you can stop the company from charging you a compound interest, which is much higher than the interest charged for the instalment plans, or complete payment.
You may consult with him to get debt advice services and get his opinions to make financial decisions of your life.