Credit Cards: Pay the Minimum, or More?


Paying more than the monthly minimum on your credit card balance is a smart strategy to pay down credit card debt. After all, the longer it takes to pay off your balances, the higher your overall interest charges will be. But with the recession still going strong, it's increasingly important to stay flexible with your available cash. At times like this, you may be better off paying only the minimum on your credit card, and not a single cent more.

During uncertain economic times, financial advisors recommend that people save up to six months' worth of fixed expenses in an emergency fund. Without that cash reserve, individuals risk not having the means to survive a temporary injury or loss of income. And with credit card companies trimming lines of credit, consumers can no longer rely on plastic to cover expenses in an emergency.

There's no question that long-term interest on credit card balances can add up. Say you have a credit card charging 17% interest on a $5,000 balance, and your minimum payment is 3%. According to BankingMyWay’s minimum payment calculator, it would cost an extra $4,296 in interest charges to pay off that balance if you only paid the minimum each month. If you paid more than the minimum -- say 5%, or an extra $100, in the first month -- that would save you $2,361 in overall interest charges.

But the cost of that $2,361 in savings down the road is less financial flexibility now. That $100 a month would be a real boost to your cash reserves. To see how quickly you can reach your emergency savings goal, check out's emergency savings calculator.

If the long-term interest charges still keep you up at night, consider applying to a low-interest rate balance transfer card, such as the Discover More card from Discover (Stock Quote: DFS), the Platinum Select card from Citibank (Stock Quote: C) or the Black card from Visa (Stock Quote: V). To see what's out there, compare the different card offers at BankingMyWay's Credit Card center.

Just remember, that without a guarantee that your credit card company won't lower your available credit after you've paid down the balance, any extra money you pay could be gone for good. That could leave you with the double whammy of less cash and less available credit at a time when both are needed to make it through potentially tough times. Either way, make sure you make your payment on time: the last thing you want to deal with is a late payment fee and a potentially higher rate

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