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Should you save money by only making minimum credit card payments?


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You’ll have more money available if you need it, but this strategy isn’t for everyone.

One thing that virtually all financial experts agree on is that you shouldn’t just pay the minimum on your credit card. You will accrue interest charges; it will take you much longer than necessary to pay off your balance; and it could affect your credit score.

The coronavirus crisis is causing some people to reconsider this advice. Suze Orman, a popular financial adviser and TV personality, has explicitly recommended that those who have lost their jobs only make minimum credit card payments to conserve more cash.

It is certainly important to have enough money to pay your bills in times of widespread unemployment and economic uncertainty. But should you keep a larger balance on your credit card to preserve your money?

To answer this, let’s look at the pros and cons.

The logic behind saving money

The recommendation to make minimum credit card payments and save your money comes down to financial security. It’s safer to have more money in your bank account than to have your credit card paid off in full. These tips are primarily for people who don’t have a lot of money in their emergency fund and may have trouble paying their bills if they lose their income.

You might be wondering what makes cash safer than credit cards in this scenario. After all, you could possibly pay your expenses with your credit card if you run out of money. There are even services available, such as Plastiq, that allow you to use your credit card to pay almost any type of bill, including rent or mortgage payments.

While this is true, your card issuer may decide to lower your credit limit or even cancel your card altogether. Both can happen – and they are more likely during an economic downturn.

You can always use cash to pay your bills. You don’t have the same security with credit cards, since your credit limit and card status are under the control of the card issuer.

The downside of paying the minimum

Since most credit cards have high interest rates, minimum payments come at a cost. You’ll pay a premium on monthly interest charges to keep more money. Even if your card issuer is one of many offering coronavirus credit card relief, only a select few are waiving interest charges entirely.

There is a way to pay the minimum and avoid interest charges, and that is with 0% intro APR credit cards. If you can get approved for this type of card, then you can make minimum payments during the 0% APR intro period without paying interest. However, you will start incurring interest charges at the end of this introductory period.

You will also continue to incur credit card debt – another potential risk of only paying the minimum amount. Credit card debt tends to get harder to pay off as your balances increase.

Should you only make minimum credit card payments?

The best way to answer this question is to look at your emergency fund. Do you have enough savings to cover at least six months of living expenses? If the answer is yes, then you’re in a financially secure position and it’s probably not worth paying interest or incurring credit card debt just to save even more money.

If you don’t have a lot of spare cash, you might want to consider reducing your credit card payments and using that money to boost your emergency fund or maintain your savings instead. Your professional status also plays a role in this decision. If you have a stable income, you may not need to take such drastic measures.

If you decide to pay minimums, try opening a credit card with a 0% APR introductory offer. Interest is the main downside of the balance on your credit card, so you should do your best to avoid it.

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