If you have a credit card, when you get your statement you will be given two main options – to repay the card in full or to pay the minimum. You may wonder which to do. It is worth understanding the consequences of each so that you can make the right decision.
Repaying in Full
If you repay what you owe in full by the date it needs to be repaid, then you will not have to pay any interest on the credit card. This means that you will be using the card for free (unless there are annual charges). This can be fantastic because you get the benefits of the credit card without any extra charges. You can even set up an automatic payment so that the card issuer takes the money from your account automatically which means that you will never forget to pay your bill and you will be able to ensure that you will never have to pay any interest. However, if you do this, you will need to keep a close eye on what you are spending on your card. This is because when the payment comes out automatically, it could mean that you will be left short of money because you have spent a lot and it could even mean you do not have enough to cover the other basics that you need to buy. So, make sure that you are careful if you do this.
Paying the Minimum
If you only repay the minimum amount each month, you will find that you will be charged interest. Interest on credit cards can be relatively high compared to other types of borrowing, so it is wise to take a look at the amount that they charge. When you get your monthly statement, it will let you know how much you will be charged in interest on the card. You will be able to see that amount and use it to decide whether you are going to repay the minimum or the full amount or something in between. If you just repay the minimum amount you will normally just be repaying the interest and a very small amount extra to repay some of the balance. If you continue to do this and spend no more on the card, you could find that it will take a very long time for you to repay your card. It could take years. If you keep spending on it, then it is likely that you will never clear the debt. You may be happy with this and be okay with paying this interest in return for having that extra money. However, it is wise to make sure you calculate how much interest you are paying in a year and think about whether you really think that it is offering you good value.
Paying Some Other Amount
Many people do not realise that it is possible to repay any amount off your credit card. This means that you are not forced to either repay it all or just the minimum. If you would rather pay more than the minimum but cannot afford to repay all of the balance then you can send a payment for what you wish to. This means that you will not be charged as much interest as if you only repaid the minimum and you will be able to reduce the debt that you owe. It can be a good alternative to repaying the full balance as you will repay the debt more quickly than if you just repay the minimum but it will be more affordable in some cases. Of course, it is best to repay everything that you owe, but this is a handy alternative if you know that you would struggle to manage this.