When Is It Ok To Pay Only The Minimum Amount?

For most people, paying only the minimum amount on their credit cards can mean a financial disaster waiting to happen.  Minimum payments mean ever-accumulating interest that can pile up when performed over extended periods.

Paying Off Debt

When you pay only the minimum amount each month, even a relatively low balance can end up taking many years to pay even if you never use your card again.  In fact, even when your card incurs no new charges, your balance will end up looking almost the same month to month, with only a small amount shaved off.  That’s because monthly minimums only tend to cover the interest payments, while only shaving off a few tiny numbers from your actual balance.

Losing A Job

Any financial experts who know what they’re doing will wisely advise you to avoid paying only the bare minimum on your cards.  However, some situations might make it necessary to restrict your payments to the least amount required.

When you lose a job, for instance, it makes sense to keep as much of your cash as liquid as possible.  Since you won’t be getting monthly checks the way you regularly do, you’ll need whatever cash you have in your bank accounts accessible in the event of emergencies.  As such, paying only the minimum on your credit cards makes sense as a way to tide you over until your employment situation reverts to a positive state.

Recession

Some financial analysts claim that during these times of recession, it makes sense to pay off only the minimum on your credit cards while you try to save up at least eight months worth of spending money in your bank account.  It’s a tricky issue that makes some sense, although the experts seem to be divided on this particular approach.  If there’s a good chance that the recession will affect your employment status, it might be worth considering.  Otherwise, you’ll just end up spending more on your debt.