Do you still get interest if you pay minimum payment?

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While minimum payments prevent penalties, accruing interest remains unavoidable when carrying a balance. Paying the full balance monthly eliminates this charge.
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The Minimum Payment Myth: Are You Really Saving Money?

Credit cards offer convenience, but their terms can be confusing, especially surrounding minimum payments. Many cardholders believe that paying the minimum keeps them in good standing and somehow minimizes interest charges. The reality, however, is far less forgiving. While minimum payments prevent late fees and potential damage to your credit score, they do not prevent the accrual of interest. In fact, relying on minimum payments can significantly increase the overall cost of your purchases.

Let’s break it down: The minimum payment is typically a small percentage of your outstanding balance, often around 2-3%. This amount barely covers the interest accrued during the billing cycle. What’s left of your payment goes towards paying down the principal balance. Since a significant portion of your payment is absorbed by interest, the principal balance shrinks slowly, leaving a substantial amount to accrue even more interest in the next billing cycle.

This creates a vicious cycle. You’re essentially paying interest on interest, extending the repayment period and dramatically increasing the total amount you ultimately pay. Imagine this scenario: You charge $1,000 to your credit card and only make the minimum payment each month. Even with a relatively low interest rate, the interest charges alone could easily exceed the amount you’re paying down the principal. Years later, you might still be paying off that original $1,000, having shelled out thousands more in interest.

The key takeaway is this: Minimum payments are a safety net, preventing late fees and protecting your credit, but they are not a cost-effective repayment strategy. They are designed to keep your account active and generating revenue for the credit card company, not to help you quickly eliminate debt.

To avoid the high cost of interest, the best approach is to pay your credit card balance in full every month. This eliminates interest charges entirely, allowing you to benefit from the convenience of credit without incurring unnecessary debt. If paying the full balance isn’t feasible, aim to pay significantly more than the minimum payment to reduce the principal balance faster and minimize the long-term interest burden. Consider creating a budget, exploring debt consolidation options, or seeking financial advice to develop a more effective repayment plan. Don’t let the minimum payment trap you into a cycle of escalating debt. Take control of your finances and break free from the high cost of carrying a balance.