Understanding Your Credit Card Payment Options

Maybe you have noticed that once in a while, especially if you have been very good about making your credit card payment on time, you get a letter or note on your monthly credit balance statement that says you get a payment vacation. Some credit card companies offer these chances to skip a minimum payment, in other words, but before you accept the offer think about it for a minute because if you do not make the minimum payment you are still charged interest.

Making the minimum credit card payment just means you are keeping up with a portion of your interest payments, but by doing that you do not do anything to pay off the main balance of your debt. Only when you pay more than the minimum do your credit card payments cut down on your total outstanding balance – and only when you make a large enough credit card payment to pay off the entire balance do you stop getting charged interest.

Normally – unless you have a special card that lets you isolate certain purchases and pay them off separately – your card company will apply your credit card payments only to the total balance. So you may have a current outstanding balance, for example, of $300. If you buy something this month for $50 and pay for it at the end of the month by making a credit card payment of $50 your card company does not see it that way. In other words they don’t apply the $50 to that specific purchase but they just deduct it from the total you owe which is $300, plus the new $50 charge, plus any fees or interest you owe.

To really pay off your credit cards, therefore, you have to pay down the whole amount and clear the total outstanding balance back to zero. But keep in mind that there are some new cards being offered to those who have good credit and these cards offer financial management and budgeting tools that may let you pay off a designated purchase by itself – which gives you the flexibility to be more precise about how your credit card payment is applied. Some of these cards charge an annual fee but if you like that feature and option, you may want to look into getting one of these new cards.
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