The overall amount of interest you pay every month on your multiple credit cards depends a great deal on how you manage your outstanding card bill payments. Even if you are making payments for all your cards every month, if you are not managing them properly, you could be losing a significant amount in the form of extra interest charges. This, of course, also means that any rewards you may have earned with your rewards points or cashback cards are being negated by the interest charges.
Take a look at some of the mistakes we make while paying credit card bills every month.
1. Making Just the Minimum Payment
Credit card issuers allow you to make just the minimum payment every month to keep your account in good shape and to avoid late fees. While it may feel like an easy way, making just the minimum payment every month isn’t always the smartest way of managing credit card payments. When you make the minimum payment, you take more time to settle your dues and ultimately you end up paying much more interest than you should be paying.
2. Not Verifying Your Transactions
Even credit card issuers make errors. If you are not reviewing your card statements every month before making the payment, there are chances that you will end up paying for a transaction that you didn’t even make. Make sure you check all your statements and if you spot an error, report it immediately.
3. Overlooking the Interest Charges
This is the most common mistake we make while making card payments. Overlooking the interest that is being charged to all your cards can cost you a lot in the long term. Check out some of the ways you could be overlooking your interest charges:
- Making equal payment for each card: Imagine you have set aside $500 in a particular month to settle your credit card bills. Would you split this amount equally across all your cards? If yes, you would be making a mistake. Instead of splitting the amount equally, you should try and repay the card with the highest interest charge first.
- Repaying the highest balance first: The cards with the highest balance are generally given priority in repayments. If you are doing the same, you could be making the mistake of not paying off the card with the highest interest rate first.
- Repaying the lowest balance first: If you are paying off the card with the lowest balance first, hoping to get the card balance to zero and see your credit score improving, you could be making the same
- Matching the balance with repayments: Imagine you have two credit cards. One of them is carrying a balance of $1,000 and the other one with $500. Now, assume that you have a budget of $300 for making monthly card payments. Would you pay $200 for the card with the balance of $1,000 and $100 for the other card? If yes, that’s a mistake.
Here’s the Best Way of Managing Card Payments
There’s a simple solution: first, you should clear off the minimum due amount for each card you hold. Once you have done that, use the rest of your monthly card payment budget for reducing the outstanding balance on the card that charges the highest rate. Prioritising the payments on the basis of interest charges will help you save a lot of money.
Sources:
https://qz.com/1205124/the-foolish-strategies-people-often-use-to-pay-back-credit-card-debt/
—
This post is written in collaboration with Nidhi Mahajan —a partner of The Good Men Project.
—
Photo by Jonas Leupe on Unsplash