2% Minimum Payment - Good of Bad?

  When you are sorting through all the different credit card applications and offers online, you are going to see that for some of the credit cards the minimum payment is only 2% of your balance.  Many companies are lowering the minimum payment from 2.5% to 2% to attract more customers.  On the surface, this looks like it isn't that big of deal and if anything it can only be good for you.  But before you jump all over those credit card applications, there are a few things you need to know.

  Let's have a look at one example of how this is going to work and the differences between the two credit card applications.  If your balance is $2,500.00 with an APR of 18% and your payment at 2.5% would be $62.50.  But if you are just paying your minimum balance every month, it would take you about 20 years to pay this $2,500.00 off.  Over those 20 years you would have paid the credit companies $3,365.51 in interest.  Now that same $2,500.00 with the 18% APR and your payment at 2% would be $50.00.  This might sound good and you will save a little extra money each month.  But it is going to take you over 34 years to pay it off.  Paying that .5% less is going to make you take an extra 14 years to pay off your balance if you just pay the minimum payment.  And the interest you pay would be $6,430.93.  That is almost double what you would have paid if you were paying a 2.5% payment.

  Just because any credit card applications have the lower minimum payment is not a reason to discard that offer and look for something else.  If those credit cards offer you everything you are looking for then do not let the 2% minimum payment stop you.  But try and make yourself pay that little bit extra every month.  It will save you a lot of money in the long run.

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