You might as well just consolidate credit cards if you are paying only the minimum amount of your debts. Paying the minimum requirement of your credit card debts will only make things worse for you. It is true that this is enough to keep your credit score high. But then again, it will cost you a lot of money.
According to reports, more than half of Americans do not pay their credit card balance in full each month. This does not imply that these people are paying only the minimum amount. However, it still reveals that they are paying finance charges. This can unnecessarily make the balance grow. Instead of using that money to pay the principal balance, you are using it to pay the creditors and make them richer.
This is the reason why you should probably consolidate credit cards instead of just feeling content in paying the minimum amount.
The dangers of paying only the minimum amount
There are so many reasons why you should not pay only the minimum amount of your credit cards.
According to one article, carrying a balance on your credit card can be very expensive – especially since the average APR is currently 17.73%. When you carry over a balance to the next billing cycle, a finance charge will be calculated based on the interest rate. This will be added to your balance. If the interest rate is high, the amount that will be added to your credit card debt will be higher too. If you pay only the minimum payment requirement, it will take more than a decade to pay off your balance. There is also a high chance that the interest that you will pay as a whole will almost be as high as your principal debt.
It is true that paying only the minimum amount will help keep your budget from feeling too strained. But if you think about it, there will be two disadvantages. The first is you will be in debt for a very long time. The second disadvantage is you will pay a lot more than what you borrowed – almost doubling what you owe.
Why consolidate credit cards instead of paying the minimum
If you think that your budget can only accommodate the minimum payment, try to consolidate credit cards instead. There are many benefits to consolidating multiple debts.
You can save on the interest
First of all, you can save on the interest of your debts. When you consolidate your credit cards through a loan, you can choose one that has a much lower interest rate. If you still have a good credit score, there is a higher chance of being approved of a really low rate. Even if you were only paying the minimum, as long as it is not late, it can help improve your score.
When you are approved of lower interest on your consolidation strategy, it will help you save a lot of money. You can make lower monthly payments, even near the minimum, and it will not make you pay a significant interest amount.
You can have a more structured repayment plan
Usually, a new credit account is involved when you consolidate credit cards. This is an opportunity for you to have the repayment plan that suits your financial situation and future goals. If you need to get out of debt faster, you can opt to make bigger payments. This will shorten your repayment plan. But if you are sticking to the minimum payment before consolidating the debt, that is an indication that you cannot afford to pay much. That is okay. Just make sure that your new repayment plan has a lower monthly contribution. This will take longer to complete but it will keep your budget from feeling too strained. Knowing the type of repayment plan will allow you to try out debt consolidation properly.
You can get out of debt faster
The last benefit when you consolidate credit cards is the possibility of paying off your debts faster. Paying off the minimum will take decades to complete. You are only paying 3% of your balance. That is only a little over the amount that is added to your debt through the finance charge. If you really want to get out of debt, you need to consolidate your multiple debts into a new credit account with a lower interest rate. That way, more of your payments will go to the principal balance. That will not just save you money, it will also help you get out of debt in a shorter amount of time.