Credit card minimum payment amount: Introduction
Do you believe that because you make the credit card minimum payment amount on time every month that you’re doing well? Do you think this would let you be considered a good credit risk? If that’s the case, you would be wrong. Making only the minimum payments on your credit cards is a sign that you’re living in a financial danger zone. And the likelihood is that if you continue along this path, you’ll accumulate more debt. You will not get out of debt.
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Credit card minimum payment amount: What the TransUnion survey says
TransUnion, one of Canada’s largest reporting agencies, did a recent survey. It showed that making just the credit card minimum payment amount is leading more consumers into delinquency. This is the same result with other loans too.
They’ve also created a “Total Payment Ratio” metric that shows the correlation between the payment amount and the delinquency across multiple products. To calculate the TPR a consumer’s total monthly credit payments are divided by the total minimum due on all the consumer’s credit products. The higher the TPR, the less likely a consumer falls behind on payments. Using the TPR to find the risk of delinquency, the TransUnion study showed:
- Canadians with a TPR of less than five on their credit cards had a 1.77% high risk of auto loan delinquency — defined as not making a payment for 90 days or more
- Once the TPR rose to more than 15.0, the high risk of delinquency dropped to 1.4%
Credit card minimum payment amount: It is not a good sign of your credit worthiness
As you can see, just making the credit card minimum payment amount is not a good sign of your credit worthiness. Conversely, making more than the minimum monthly payments will make you more attractive to financial institutions. This is because consumers that make more than the minimum monthly payments tend to have more liquidity and will be less likely to miss payments.
Credit card minimum payment amount: You need help to get out of debt
If you’re making only the credit card minimum payment amount, you haven’t got a hope to ever get out of debt. The interest rates are around 20% (and sometimes more). Your minimum monthly payments are paying the interest, not the debt. Now is the time to call in the professionals! Contact a professional trustee. The Ira Smith Team can help you conquer debt and get back on track to living a financially healthy life Starting Over, Starting Now. All it takes is one phone call.
