馃攳
Paying the Minimum on Your Credit Cards! (What Happens?) - YouTube
Channel: Honest Finance
[0]
so I don't know about you guys but if
you ever noticed that when you check to
[2]
pay the minimum balance on your credit
card that the credit card companies just
[6]
make you feel like it's something that's
okay to be paying well it's not okay to
[10]
be paying and that's why I'm making this
video because I want to go over all the
[13]
cons about paying the minimum balance on
your credit card because honestly
[18]
there's a few big ones three
specifically that I want to cover
[21]
because it's not a good idea to be
paying the minimum balance unless you
[25]
absolutely have no other choice now
before I get into everything I do want
[30]
to preface that if you have no other
choice with your credit card company but
[33]
to pay the minimum payment then
definitely do that because you are not
[37]
going to have any late fees and it's not
going to be reported on your credit as a
[41]
late payment so definitely make sure
that you are at least making that
[44]
minimum payment if you're in a pickle
because then you're not going to have
[47]
any real consequences other than
interest and a couple other problems
[51]
that I'm going to be talking about in
this video and if you just happen to
[54]
find this channel I'm Jason with honest
finance and I make a lot of videos on
[57]
different topics that will give your
life and your finances more value so if
[61]
you do have an interest in this
particular type of content feel free to
[64]
subscribe or just give this video a big
thumbs up but now let's start talking
[68]
about the three big cons with making
your minimum payments on your credit
[72]
cards so the first big problem with
paying the minimum balance on your
[75]
credit cards is the obvious fact that
you are going to be accruing interest
[78]
because you're making the minimum
payment because basically how it works
[82]
is you're gonna have a statement balance
that's due every single month and if you
[86]
don't make that statement balance paid
off in full by the due date then you are
[90]
gonna accrue interest so obviously
paying the minimum payment this is the
[94]
smallest amount possible it's never
gonna be the amount that you need to pay
[98]
off that statement balance so you are
gonna be accruing interest but that's
[102]
usually just a given and when I say that
it's just a given what I'm referring to
[105]
is the fact that most of us understand
that you are gonna be paying interest
[108]
when you're making those minimum
payments but I don't think a lot of us
[111]
understand how the interest is actually
accruing now I'm not gonna go into this
[115]
and huge depth here but it is called a
DB which means it's average daily
[120]
balance and that's the method that the
credit cards are using and I'll just
[123]
briefly explain how that works here okay
so the easiest way that I can explain
[127]
how the average daily balance method
works is just think of your billing
[130]
cycle as an entire average here
so if you've got 30 days in your cycle
[134]
and you started your balance off with $0
and then you ended up at $1,200 then
[140]
what the credit card company is gonna do
is they're gonna take your balance every
[143]
single day during that entire cycle and
then they're gonna take an average and
[147]
then they're gonna be able to apply
their interest rate on to that average
[151]
and that is how they charge you the
interest it's just as simple as that
[154]
it's just an average of the entire cycle
but that's the way that it works now if
[159]
you do happen to be paying interest on
your credit cards there is something
[162]
that you can do to save a little bit of
money on interest and that's just the
[166]
fact that if you are going to be making
big purchases do those towards the end
[169]
of the cycle because then your average
is going to be lower because if you were
[173]
gonna buy a $2,000 fridge at the
beginning of the cycle that's gonna bump
[177]
up your average throughout the entire
cycle so buy that at the end and that
[181]
will save you money on interest and then
another thing you can do is if you have
[185]
money to pay off your card pay that off
as often as you can during the cycle to
[191]
get your average down a little bit lower
because the more you can put towards the
[194]
credit card the lower that average is
going to be and that's gonna save you on
[198]
interest so do that as far as those tips
go if you are paying interest obviously
[203]
it's a lot better to pay no interest but
there are some of us out there that are
[207]
paying interest so if you are use those
tips and you can save some money now the
[211]
next problem with making the stupid
minimum payments and your credit cards
[214]
is just the fact that a lot of the
credit card companies are only going to
[218]
be making you pay at least one percent
of your balance plus the interest and
[222]
that's it so a lot of the time it's
really easy to be making that minimum
[226]
payment but the problem is is that
you're never gonna get out of owning
[229]
them money because for instance if you
had a $1,300 balance you might only oh
[234]
like 20 to 30 bucks as a minimum payment
but it's gonna take you over ten years
[239]
just to pay that off and you're gonna be
wasting all that money in interest so
[243]
they make you feel like it's super easy
to make that minimum payment but it's
[247]
something you really don't ever want to
be doing so if you have been making
[250]
minimum payments just be aware that it's
going to take you forever to pay off
[254]
your credit card balance if you're
making that minimum payment plus the
[257]
other problem is you're probably still
making charges on your credit card so
[262]
stop making charges and pay anything
more than you
[265]
can towards the minimum so for instance
if you owe 50 bucks as a minimum just
[269]
try paying 75 something better than what
the minimum is so that you can start to
[274]
climb out of the hole that you're in now
the third problem with paying your
[277]
minimum balance or just not paying off
the statement balance in full is the
[281]
fact that you are gonna lose your grace
period now what the grace period is is
[285]
it's just the gap between when your
cycle ends and when the due date happens
[290]
so usually it's like 25 days after the
cycle ends and that's when your due date
[294]
that's the grace period you don't
actually have to pay any interest on
[298]
purchases that you make during the grace
period if you're not accruing interest
[302]
meaning you're paying off your statement
balance every month but if you're paying
[305]
your minimum balance obviously you are
losing your grace period so just keep
[309]
that in mind you are paying interest on
everything now obviously when I'm
[313]
talking about the grace period the due
date the billing cycle all that kind of
[317]
stuff it is a little bit complicated
when it comes to credit cards and
[320]
understanding how they work so I will
leave a playlist up here that you guys
[324]
can watch these have some more in-depth
videos on those specific topics so if
[328]
you guys want to learn more about the
grace period or how credit card interest
[331]
works and stuff like that those videos
will explain that but I'm just trying to
[335]
briefly explain why you don't want to be
paying your minimum balance but if you
[339]
need some more help those videos are
here for you guys now in order to stop
[343]
paying interest on your credit cards
basically the only way that you're going
[346]
to be able to do that is to pay off that
statement balance in full by the due
[351]
date now once you do that a lot of
credit card companies actually require
[354]
you to do that two times in a row so for
two months in a row you're gonna have to
[359]
pay off that statement balance in full
in order to get your grace period back
[363]
and to not pay interest on any purchases
that is the only way that you're not
[367]
going to be paying interest on your
credit card is to once again pay off
[371]
that statement balance in full by the
due date and then you are good to go and
[375]
you don't have to worry about a thing
now obviously every credit card issuer
[378]
has different rules so you are gonna
want to check the fine print on how to
[382]
exactly get out of paying interest but
generally what I found is that you got
[386]
to pay the two months in a row of your
statement balance now your statement
[390]
balance for instance if it's a thousand
dollars you have to pay that full
[393]
thousand dollars off by the due date
you can't just pay 999 dollars
[399]
the due date otherwise that $1 that you
owe is gonna cause the entire ripple
[403]
effect of paying interest on your grace
period and your past purchases so just
[407]
don't open up that can pay off that
statement balance completely in full and
[412]
that's all you have to worry about so at
the end of the day if the credit card
[416]
company makes you feel like it's okay to
be making those minimum payments just
[420]
understand that it is something you
don't want to be doing unless you
[423]
absolutely have to because you are gonna
be paying interest on it you're never
[427]
gonna get out if you make those minimum
payments and you're losing your grace
[430]
period so don't pay interest unless you
absolutely have to now once again if you
[435]
just found this channel I'm Jason with
honest finance and I make a lot of
[438]
videos on different topics that'll give
your life and your finances more value
[443]
so if you did get some value out of this
video feel free to subscribe but for now
[447]
I am gonna leave a few more credit card
videos that you guys can watch over here
[450]
but thank you for your time have a great
day
Most Recent Videos:
You can go back to the homepage right here: Homepage