Why Canadians Should Pay More Than the Minimum Amount on Credit Cards

Among the biggest mistakes Canadians can make with using credit cards is paying only the monthly minimum, but thousands of people do just that. 

Committing this mistake belongs with other bad financial habits like borrowing money that one cannot afford to pay or spending too much on huge sales like Black Friday even if there’s no need to purchase anything.

But why is it wrong to pay just the minimum due on a credit card? What can Canadians do about credit card debts? This article from Debt Helpers will answer those questions:

Why It’s Important to Pay More Than the Minimum Amount on a Credit Card 

Anyone with a credit card in Canada may wonder why paying more than the minimum amount each month is important. After all, the minimum payment is usually quite low, and it can be tempting just to pay that and move on. However, there are several good reasons why credit card owners should try to pay more than the minimum amount each month.

One of the main reasons is that it will help card owners pay off credit card debt more quickly. The minimum payment is usually calculated so that it will just cover the interest and fees on the account, which means that if the credit card owner only pays the minimum, the balance will likely stay the same or even increase over time. By paying more than the minimum, the actual balance of the credit card can be reduced, which will help card owners get out of debt more quickly.

Another reason to pay more than the minimum is that it will save money in the long run. The interest rate on credit cards is usually high, so if a credit card user only makes the minimum payment each month, there will be much higher interest to pay over time. By paying more than the minimum, one can reduce the interest that needs to be paid, saving money in the long run.

Finally, paying more than the minimum can help improve credit scores. Credit scores are partially based on the credit utilization ratio, which is the amount of credit people use compared to the amount of credit available. If card owners only make the minimum payment each month, the credit utilization ratio will be high, which can negatively impact the credit score. However, if one pays more than the minimum, the credit utilization ratio will be lower, which can help improve the credit score.

As anyone can see, there are several good reasons to pay more than the minimum monthly amount on credit cards. Credit card users can save money, get out of debt more quickly, and improve credit scores. So if possible, be sure to pay more than the minimum each month.

Conclusion

It is important to remember that making only the minimum payment on a credit card can lead to costly interest charges. By making more than the minimum monthly payment, one can avoid these charges and save money in the long run. Of course, one also has to practice responsible use of credit cards. While those plastic cards do offer convenience, they could also easily trap anyone in massive debt, especially if one buys things beyond their means. Of course, anyone already having difficulty managing debts and finances, in general, should seek the guidance of Debt Helpers.

Debt Helpers is a team of debt consultants in Mississauga, ON, that offers tailored debt solutions to Canadians. Find out how Debt Helpers can help!