It is actually very tempting to pay a smaller amount against your mammoth credit card bill and getting relieved from paying any sort of late fee or interest on the remaining bill amount. However, this certainly is one of the worst decisions from a financial standpoint.

Here’s why: The minimum payment amount is a very small proportionate of your total outstanding credit card, generally between 2-5%. Although, paying the minimum due to the total outstanding balance of credit card releases the maximum stress. But this relief is not a permanent solution as the bill with the outstanding balance, interest and further spending (if any) will be generated in the subsequent month, which again turns out to be a huge liability for an individual, especially with a limited and fixed income.

Here are sundry reasons why you should not consider the option of paying only the minimum amount:

Paying Only Minimum Dues Has Negative Effects

Paying higher interest (compounded interest): When you pay minimum dues, mostly you pay only interest. What’s worse, when you realize that what you were paying was just the fees for carrying forward the total outstanding balance to the next month. Along with this, your credit card score also suffers when you regularly opt the option of paying the only minimum due amount. Keep in mind: The closer you are to your credit limit, the more negatively carrying debt will affect your credit score. The interest charged towards credit card is higher and it is compounded every month. Hence, you may end up paying a huge amount towards the compounded interest in the next month or a few months.

Unable to use the card: It is evident from the above fact that due to the nature of the interest charged on the outstanding amount, you will prefer not to use the card as it is not a sustainable way to manage finance. Also, because of the outstanding interest amount, it is possible that you may exceed the minimum credit card limit which hampers future financial planning as the purpose of using the credit card will not be fulfilled.

In order to get rid of credit card debt, you should design an effective debt repayment plan under which the first and foremost step would be avoiding usage of credit card followed by paying more than the minimum balance.

Few simple steps to avoid paying only the minimum amount

Change Your Lifestyle: Generally, people carry credit cards to maintain their lifestyle, but while maintaining the standard, they forget that what they are spending is just a credit limit allowed by their banks that needs to be repaid at a later date. It can be discouraging to realize that you have months of credit card payments ahead of you. There is only one solution left for getting out of debt that initially requires a change in lifestyle followed by reducing and eliminating the usage of the credit card.

The best way to set off debts along with maintaining the desired lifestyle is to consider the option of getting a part-time job. Further, set a budget to control the expenses and encourage savings to settle the debts.  You may also consider availing the loan facilities provided by a licensed money lender in Singapore as interest for other lines of credit is lower when compared with that of credit cards. Hence, you will be not only clear the outstanding amount but also save yourself from paying compound interest in the next month.

Avoid Using Credit Cards: If you are one of those individuals that do not plan before spending or buying anything, then you must avoid using credit cards. This is because spending through credit card needs to be repaid within the set timeline and if you think that the minimum due payment is a great option to repay credit card bills and then you will apparently worsen your financial situation. Making minimum payments on your credit card debt will not get you out of debt, and is not a long-term solution. Therefore, set up a budget according to your income and save a decent proportion of your income to meet the obligations and for paying off the debts.

If you carry more than one credit card and have an outstanding balance in both of them, then you should plan your budget in a manner where you settle the amount for the card that charges a higher interest rate. Adopting the above-discussed tactics can help you to get out from the stress of paying debts quickly along with maintaining a sound financial position.