Every month, the credit card bills come in like clockwork, and consumers have a few choices: They can pay off their balances completely, just pay the minimum payments, make larger payments, or ignore them (which, of course, is definitely not recommended). You may have questioned whether you should be making bigger payments than just the minimum. The following are some things to think about:
Pay off debt faster
One of the biggest advantages of paying more than the minimum payment is that you’ll pay off your debt faster. Credit card debt can be a huge burden, and while the minimum payments could be a safe and comfortable place to be in, knowing that you still have all of that debt can be a bit unsettling. Even if you’re able to pay just a little bit beyond the minimum payment each month, you’ll be able to pay off your debt that much faster.
Pay less in interest
Getting rid of your debt sooner means that you’ll save money. Because you’re paying interest on your credit card debt, eliminating it means you won’t have to worry about financing charges. The longer you carry a balance, the more in interest you’ll pay. So while making the larger payments might be an upfront expense, you’re just paying for something that inevitably will need to be paid off anyhow, but you’re keeping more money in your pocket in the end.
Fewer bills to worry about
Receiving monthly bills for purchases you made years ago can be pretty stressful. The larger your payments are, the sooner that debt will be paid off, and it will be one less bill you’ll need to worry about on a monthly basis.
Improve your credit
When your credit score is calculated, there are several different factors taken into consideration, including how much available credit you have and how much of it you’ve used. If you have credit cards that are close to the limit or maxed out completely, minimum payments won’t do much to the balance, and you could eventually see a drop in your credit score. It can be very discouraging to see your credit score go down when you’re making timely payments every month, but if you have a lot of credit card debt, you might want to try making larger payments.
Less cash available
If money is tight already, you could be torn as to whether you should keep the cash or put it towards your credit card debt. While paying off more of your debt can free up your available credit and give you the opportunity to charge back on it if needed, this might be something you want to avoid. If you don’t have much in savings to begin with, or any at all, you might want to stick to minimum payments as you build up your emergency fund.
The opportunity to rack up more debt
Paying off debt is usually a good thing, but if you have a spending problem, you might be tempted to use up that available credit the moment it’s available again. If you want to make larger payments, but you’re worried about spending what you just paid off, consider stashing your credit card somewhere and only focus on your monthly payments. Once the credit card is paid off in full, you could always close the account so that you don’t have the chance to get into debt all over again, but you may want to avoid doing this if it’s one of your older credit cards.
You might save more money by using that extra cash elsewhere
If you do have the extra cash to make larger payments towards your credit card debt, you might be doing yourself a disservice by using that money towards those bills. While paying more than the minimum could definitely save you money, you might be able to save more by paying off more expensive loans or purchases, such as a personal loan or car loan with a higher interest rate than your credit cards.
The potential for lower credit
Getting your credit card balance down as low as possible is almost always a good thing. It saves you money and usually improves your credit, but there are some instances in which your credit score could go down. If you pay off all of your credit card debt completely by making larger payments, you may want to consider making small charges every month and then paying them off right away. Showing that you’re still actively using your credit cards—and responsibly—will usually help your credit. But because so many debtors are relieved to finally have all credit card debt paid off, they avoid using their cards anymore, and understandably so. After all, they want to avoid getting into credit card debt. And many consumers will also take the opportunity to close out their credit card accounts once they’re paid off, which can also cause a drop in your credit score, especially if you close out your older accounts. Because credit history is another factor that is taken into consideration when your credit score is determined, consider keeping your older accounts open, even if you hardly use them. If you’re going to cancel any of your credit cards, get rid of the ones with the high interest rates, low credit limits, or annual fees.
Are you receiving structured settlement payments, but would prefer to receive your money sooner in order to pay off past due bills? If you want to catch up on your credit card debt, Peachtree Financial Solutions may be able to help get you the money you need. If you’re the recipient of a structured settlement payment stream, Peachtree may be able to purchase some or all of your future payments and provide you with a lump sum of cash. By receiving your money sooner and in a lump sum, it can be easier to catch up on bills and expenses, such as credit card debt. Your lump sum payment could make it simpler to make larger payments towards your credit card bills, or you might be able to just pay off your accounts in full. Imagine how liberating it could be to finally be free of credit card debt, once and for all. Receive your free quote today and find out more by contacting Peachtree Financial Solutions.
Nothing above is meant to provide financial, tax, or legal advice. You should meet with appropriate professionals for such services.