Credit cards are the modes of payments through credit system. It is a small plastic card, issued by the banks and financial authorities, which the user can use to make advance payments or for borrowing money. Whenever a person buys something on a credit card, the person becomes a debtor of that company as the company pays that bill. Credit cards charge the users an interest on the borrowed amount.

There are many benefits of credit cards, but not using them carefully can also get us in trouble. The more we spend through credit cards, the more we have to pay later. To really benefit from the credit cards, we should learn all its rules and uses. There are some rules and guidelines that should be followed, in order to have good spending habits.

When we receive a credit card statement at the end of a month or any other time, there is also an option of minimum payment. The reason people go for minimum repayments are either because they do not know its real use or because they can afford the minimum payment only.

Minimum payment is part of amount that we can pay according to our convenience. Many people find it a helpful way to avoid debt burden. They choose to pay the minimum amount every month to cover the debt, but they do not know that it will not benefit them, instead it has many disadvantages:

1. Paying only the minimum payment amount increases the time when one will be able to cover all the debt. Even a small amount takes a year or two to pay off the complete debt in minimum payments.

2. It makes the payment of the debt longer and expensive. One has to pay much more than the original debt amount because of minimum payments. One should pay as much as one can and avoid going for the minimum payment option.

3. The minimum payment is just a percentage amount of the total debt and, with time, because of interest, the total debt increases and also the amount of minimum payment increases. This way, we are only able to pay a percentage of the total debt.

4. The minimum payment results in payment of the interest amount of that particular month and the amount of debt is not covered.

5. If the minimum payments are delayed, you are charged more and as the interest increases, the amount of minimum payment also increases. This results in an overall increase in your financial charges. It is not a way to improve the financial conditions; instead, it worsens your financial conditions.

6. Minimum payments on credit cash do not put a limit to the debt. Instead, the bills and the debt keep on increasing.

7. Due to minimum payments, the debt can increase, resulting in negative amortization, which means the interest amount crossing the debt amount.

8. One is charged a compound interest through minimum payments, which means that if you go for complete payment, the amount of interest would be much lesser.



Source by Edwood Woodward