Surely you have heard that paying the minimum of your credit card is a measure that allows you to divide the amount of debt into smaller monthly payments, while keeping your accounts current. All this seems great, especially in the face of the difference that exists with the payment so as not to generate interest . However, it could happen that by applying it, you not only extend the period to settle, but end up owing a much larger amount than the initial one.
If you still have doubts about applying or not this payment in the next period, stay and we will give you the information you need to decide.
What happens when you pay the minimum credit card?
First you have to define what we mean by minimum payment of your credit card . This is known to the smallest indispensable amount that you must deposit before your deadline for your account to be considered current.
Contrary to what happens with the payment to not generate interest , the minimum is only a fraction of your debt, so you will have to pay the interest since you will not have settled your account. Consequently, the final amount will be larger than the cost of the product or service you purchased and the term will be extended.
In Mexico do we pay the minimum credit card?
According to the information of the National Survey, among people who have a credit card, 64% pay what is required to not generate interest, that is, they are totaleros . Hence, 17% deposits more than the required minimum , which, while not ideal, does not allow the debt to get out of control. 15% is maintained with the minimum payments , and the rest cannot contribute even this amount.
With this information we see that in general there is a responsible use of credit since more than half of the cardholders worry about paying off their debt at the deadline of the corresponding period. However, 4 out of 10 is still paying interest, a situation that, depending on the financial health of each, may be a measure to stay current or a step prior to default.
How is the minimum payment of your card calculated?
According to the Bank of Mexico, there are two ways to calculate the minimum amount and in which case the option that generates a higher payment will be applied, since that would cause you to contribute a higher amount to your balance. The formulas are:
- The result of 1.25% of your line of credit.
- The sum of 1.5% of which you owe plus the interest of said amount with VAT.
Let’s see an example. Let’s think that the balance, or what you owe, of your card is $ 10,000 pesos, while the limit of your credit is $ 35,000. Applying the first formula the minimum payment would be $ 437.5 pesos.
In the second case, let’s imagine that the annual interest rate is 40%, which would apply to the period one of 3.33%. With this information we calculate that 1.5% of what you owe is $ 150, while the interest of that amount is $ 333. Which gives us a total of $ 483 pesos.
In the previous example, the second result would be applied as it is a larger amount. However, of those $ 483 pesos, only 31% of that amount will go to capital, while the rest represents what you would be paying in interest. Therefore, in any case, the money that goes to capital is less than that of interest for not having settled.
Consequences of only paying the minimum of your credit card:
Let us think that despite all this information, you decide to contribute only this amount. The result of this entails:
- Paying your credit the minimum payment would imply that next month you will have to pay the interest generated (for not paying the full amount) plus what corresponds.
- The amount that goes to the capital (loan) is less.
- When the full payment of each month is postponed, a snowball effect is generated, that is, your minimum payments will gradually become larger and it would take years to settle a debt that was initially small.
- According to the previous paragraph, you run the risk of reaching a point where not even the minimum payments are an amount that you can cover, so it is more likely to fall into arrears and your history in the Credit Bureau could be affected.
- Your initial debt ends up doubling.
- In case you have any doubts, you can do an exercise with the minimum payment calculator , you can see that paying more than the minimum suits your personal finances.
What can you do to avoid paying your credit card minimums?
First, you must think carefully what you are going to buy. Whether you spend only on what you can settle in a single payment to become a totalero, or take advantage of the Months without Interest, but in moderation.
If for some reason you cannot settle on the cut-off date, try to deposit an amount greater than the minimum payment . This will not prevent interest from being generated in the next period, but you can better control your level of indebtedness.
Assuming you cannot deposit even more than the minimum weight, then apply this measure and commit to paying a larger amount next time.
In case you are in default or when you can no longer pay the minimum of your cards you have fallen into default, go to Solve your Debt and find out how we can help you settle with your own money and without requesting an extra loan .