Definition
The smallest amount you need to pay on a credit card or loan each month to stay current. Paying more can help reduce your interest over time.
What to consider
- Avoid paying only the minimum if you can help it.
- Paying extra reduces your interest and shortens debt duration.
- Monitor your balance to stay aware of the true cost of debt.
Real world scenarios
- You make the minimum payment on your credit card but plan to pay extra later. This approach avoids immediate late fees but can stretch out the debt for much longer.
- Understanding the minimum payment helps you budget for debt repayment. It keeps your account current but may lead to higher total interest over time.
- Paying only the minimum can be a warning sign that you need a payoff strategy. Reviewing your expenses can help you find extra funds to reduce the balance faster.
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