Usually when your credit card statement arrives, you open it with fear, waiting for a miracle. Sure, it depends on how much you’ve gotten a month, or, if you’ve been paying as you should; Anyway, seeing the “minimum payment” box fills you with some indescribable relief, is not it?
And, it seems a small amount with which we can catch up with the bank, but beware! Paying the minimum does not mean that you are complying with the payment of your debt. That amount is only to keep your credit current and not become a delinquent client, but you do not pay anything to capital, that is, to the money that you owe from origin. Let’s go by parts.
What is the minimum payment of the credit card?
It is a small amount requested by the bank that you liquidate before your payment deadline, in order to maintain your current credit and not report you for non-compliance. The minimum payment is stipulated in the account statement that you receive from month to month.
How is the minimum payment calculated?
In 2013, the Bank of Mexico established a methodology to calculate the minimum payment of a credit, in order to avoid over indebtedness of people who could not control their card.
The methodology responds to two formulas:
- You can calculate 1.25% of the limit of your line of credit (if you do not know it, check it on your account statement). OR…
- Multiply your balance by 1.5%, to the result add the VAT and interest (with your corresponding VAT).
The result of either of the two options will be your minimum payment. Which of the two? Your bank will always choose the highest option.
What is the risk of making only minimum payments?
If every month you only pay the minimum that the bank requires, in the end you could end up paying – for decades – much more money than your original debt.
The National Commission for the Protection and Defense of Users of Financial Services (Condusef), raises an example; It says that if a person buys a super screen of $ 10,500 with his credit card and only makes the minimum payments that the bank asks for, in the end it will take 15 years to settle it; and that is not the worst, the accumulation of interest will make the term pay a total of $ 55,000.
Why does that happen? It turns out that if you do not pay the interest that your debt generates in a month, they add to the capital, which, too, will create more interest; In addition, you must add VAT and commissions or penalties for delayed payment.
5 infallible recommendations to save problems
- Beware of the way you use your credit card, remember that they are a means of payment and not a long-term credit.
- Get used to paying off your debt per month. If you can not, pay at least double the minimum, plus purchases to months without interest, thus avoiding high interest, commissions and surcharges.
- Analyze if the credit line you have is what you really need and especially if you can pay it; otherwise you can request that it be reduced.
- If you consider that you can no longer pay, go to the financial institution to renegotiate your debt and thus prevent it from growing much more by interest.
- Use the Condusef minimum payment calculator, quantify the impact (time and cost) that results from paying only the minimum, in your particular case. By seeing how much you could pay, you will be motivated to make an extra effort and try to pay as much as possible.