how much should you pay on your credit card?

Strategies for Making Optimal Payments

• Pay more than the minimum: Even small increases above the minimum payment can significantly reduce your debt over time. For example, if your minimum payment is ₹1,000, consider paying ₹1,500 or ₹2,000 to accelerate debt repayment.
• Consider the snowball or avalanche method: The snowball method involves paying off the card with the lowest balance first, regardless of interest rate, providing a sense of accomplishment. The avalanche method prioritizes paying off the card with the highest interest rate first, minimizing overall interest paid. Choose the method that best suits your motivation and financial situation.
• Utilize autopay: Set up automatic payments to ensure you never miss a due date and avoid late payment penalties.
• Explore balance transfer options: Some credit cards offer 0% introductory APR on balance transfers, allowing you to transfer existing high-interest debt and focus on repayment without incurring additional interest charges during the introductory period. However, carefully consider any associated balance transfer fees and ensure you repay the transferred balance before the introductory period ends to avoid high regular interest rates.

Example

Let’s assume you have a credit card balance of ₹50,000 with a 15% APR (representative interest rate) and a minimum payment of ₹2,500. If you only make the minimum payment, it would take approximately 26 months to pay off the debt, and you would end up paying a total of ₹24,500 in interest charges.

However, if you increase your monthly payment to ₹5,000, you would pay off the debt in approximately 12 months, saving yourself ₹12,250 in interest charges. This demonstrates the significant financial benefit of making larger than minimum payments.

Remember

The optimal amount you should pay on your credit card depends on your individual financial situation and goals. Prioritize essential expenses, maintain a healthy DTI, and consider high-interest rates and long-term goals when determining your payment amount. By implementing these strategies and making responsible choices, you can effectively manage your credit card debt and achieve your financial objectives.

Disclaimer: This information is intended for general knowledge and should not be taken as financial advice. Always consult with a qualified financial professional for personalized guidance on managing your credit card debt.