Money 101  >  Money Myths

"It's OK to only pay the minimum of your credit card."

POSTED ON June 27, 2019

The myth

When you get your credit card bill, you generally look at three things: your balance, the minimum payment, and the due date. Let’s break these down:

  • The balance is how much money you owe.
  • The minimum payment is how much you need to pay to maintain your credit card.
  • The due date is when you need to pay at least the minimum.

On the due date, you don’t have to pay off your entire balance. You can just pay the minimum. If you don’t, then the bank closes your credit card account. This will hurt your credit history and make it hard for you to apply for another credit card or get a loan.

Why people believe it 

The idea that you can get by with paying only a small amount even when you owe a big amount is tempting. Money can be hard to come by and the more money you have on hand, the easier it is to enjoy.

Is it true? 

With credit cards, you spend borrowed money, and the price of borrowing this money is interest which goes up to 3.5% or more. Paying only the minimum means the remainder of your balance grows through interest.

This can be seem manageable at first, but remember that interest compounds. Given enough time, your balance may grow so big that you might not be able to pay even your minimum. If you were incredibly wealthy, this wouldn’t really be a problem. But then again, wouldn’t you rather use compounding interest to grow your money instead of burning it?

Verdict: Plausible, but highly unlikely.