Please note: Our
San Francisco branch is temporarily closed due to flooding. We apologize for
any inconvenience. The SF branch ATM remains operational. You may also visit
our closest branch in Palo Alto at 490 California Ave. or do your banking
through Tech CU’s Virtual Branch by clicking on the "Make an Appointment" button below. Tech CU’s Online Banking and Mobile Banking app are also
available and all our ATMs are operational. If you have any questions, please
don’t hesitate to reach out to us at (800) 553-0880.
Each credit card statement you receive includes a "minimum payment" amount along with transaction, balance and interest rate information. Depending on other parts of your financial situation and your spending habits, the temptation to pay only the minimum
can be great. As tempting as it may be, you should always try to pay more.
Credit card companies usually calculate the monthly minimum payment due as a percentage of your outstanding balance. The percentage is usually more than the interest rate they are charging on your balance, but low enough to make the minimum payment amount
seem attractive. After all, they make money by charging interest on what you owe.
The cost of paying only the minimumAs you consider how much to pay each month, be sure you understand how all the numbers work. To keep it relatively simple, let us assume you have an outstanding balance of $5,000, the annual interest rate being
charged is 12% (1% per month) and the minimum payment is 2% of your outstanding balance. If you just pay the minimum of 2% ($100) and have no additional charges, $50 of the payment goes to pay the interest and your balance is paid down to $4,950.
If you continued on that schedule, it would take you 299 months (almost 25 years) to pay off the balance. On the other hand, if you paid $250 each month, you would have the balance paid off in about 23 months.
As a practical matter, unless you stop using a card each month you will have additional charges, interest will be charged and you can decide how much over the minimum you wish to pay. Here are some charts that show how this could work.
Assume you start with a balance of $5000, have an additional $500 or $400 of charges each month and have a credit card with a 12% interest rate.
Assume you start with a balance of $5000, have an additional $500 or $400 of charges each month and have a credit card with a 16% interest rate.
Paying more than the monthly minimum will eliminate the balance much faster, save you considerable interest charges and provide some peace of mind knowing you are taking a prudent action.
Here are five ideas for finding cash to make the payments and reducing your credit card balance faster: