A credit card is a necessary financial tool for modern life. It's also a fast way to get yourself into financial trouble. To avoid that, you need to plan for how you pay your monthly credit card bill. But first, a couple of bonus tips for keeping out of trouble in the first place.
- Have a reason for the credit card. Don't be swayed by the slick commercials and ads. Make sure that you have a plan for how the card will fit into your financial lifestyle.
- Don't carry your credit card around with you. It just makes it too easy to abuse the card on a whim. Instead, be like my daughter who keeps it locked up in a metal box at home. Like me, she only uses it for the occasional on-line purchases.
And now let's get back on track. When you get your monthly card statement you will see two dollar amounts: The New Balance, and the Minimum Payment Due. You can pay either amount, or any amount in between. Let's look at some options, listed from best to worst.
- The best thing you can do is to pay the entire New Balance each month. Even if it hurts. This keeps you spending within your means and avoids interest charges.
- If you can't do that try to pay a significant portion (more than half) of the New Balance.
- Try to pay at least half of the New Balance.
- If that's not possible try for one third, or even one quarter of the full balance. Obviously, the more you can pay the better.
- Pay an amount that is equal to the purchases you made plus any interest. This will keep the card balanced and keep the New Balance from growing, but you will be treading water. You will not be making progress to paying off the card.
- Pay a multiple of the Minimum Due. This will be better than making just the minimum due, but not by much.
- Only pay the minimum payment due if that's really all you can handle. If this is all you can handle, you are in trouble. You better stop using the card and figure out a serious plan to get the card paid off.