Understanding minimum payments

A crucial aspect of credit cards to understand for consumers to avoid decreasing their credit score and accruing unnecessary debt is the difference between a total amount due and a minimum payment.

Since both figures typically appear on a credit card statement, many debtors confuse the two. The total amount due is a figure representing the consumer’s total balance. Should a consumer wish to pay this amount at the end of a billing cycle, no interest will accrue and he will owe nothing on that credit card, according to Forbes.

The minimum payment is the minimum a consumer must pay to avoid being labelled as delinquent on his debt and eventually having the debt go to collections. Not making minimum payments and allowing debts to go to collections can translate into a consumer having a bad credit history.

Some consumers confuse the two terms and think that the total amount due is what must be paid every month. Therefore, they wait until they can pay off their balance in full before making any payments, inadvertently damaging their credit scores in the process, the news source reports.

Paying the minimum payment is not good for a credit score, but it’s reportedly less damaging than not paying anything.

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