Credit card usage has grown annually, both in conventional commerce and in electronic shopping. Despite the practicality of “plastic money”, credit cards can pose major problems, many cannot handle the accumulation of benefits, exorbitant interest rates, use of revolving credit and payment of only the minimum amount.
The purpose of this article is not to provide tips on how to use credit cards in general, how to spend less on credit cards, or even tips on how to prevent card cloning. Also because we talked about this before.
The intention is to make it very clear how much we are all harmed by paying only the minimum amount. Many people do not know what it means to pay only the minimum (some even think it is a “benefit” from the operator) and operators have no intention of clarifying this situation, considering how much they earn with this mode of collection.
Do not pay only the minimum amount!
The first and foremost information about this mode of payment: You are paying absolutely nothing of the main amount, but only the interest. In other words, if you only pay the minimum and spend nothing the following month, the next invoice amount will be exactly the same as the previous one.
To make it even easier, I will give you an example. Let’s say your bill was $ 550, the minimum payment was $ 50, and your card’s monthly interest costs 10%. When you only pay the $ 50, the invoice would be $ 500. However, when you apply the interest of 10% per month, the invoice will be the same month the next $ 550. This if you do not make any other purchase.
As I said at the beginning, a lot of people don’t know that. And to make matters worse, credit card companies still encourage the minimum payment, as often the minimum payment amount is more prominent than the invoice value itself. This induces less enlightened people to pay the minimum amount.
Financial Education: revolving credit and minimum payment
Fortunately, some changes may be underway. Last week, I reported on Twitter to Want to Get Rich that shopkeepers in the state of Sao Paulo are rallying against abusive practices by credit card companies. The main claims are related to educating the public about revolving credit and minimum payment, to avoid consumer debt, the creation of a regulatory agency for the sector and a reduction in the rates charged on credit card transactions.
However, once these changes are put in place and benefit less enlightened consumers, it will take a long time. That is why it is important to know how the minimum payment works and to avoid (actually abolish) this practice.
Surely you have already used it (or still use it) or know someone who routinely uses this practice. Therefore, pass on this information and contribute to people’s financial health.