Credit card principal question.

[aquariuscsm]

I was talking to a friend of mine about why to avoid credit card debt. I was explaining credit card debt vs say, an auto loan. I told her most credit cards charge 20-30%+ interest and that my auto loan is only 2%, explaining principals, interest, etc.

Something I always wondered, can you pay towards the principal of a credit card debt, such as instead of making the min payment, pay several hundred dollars? She'd asked me that and I honestly told her I have no idea, but it was definitely some food for thought. I avoid credit cards like the plaque, as to only keep them for things that require credit cards.

 

[GSCJR]

Yes, you can pay it off immediately if you wish. I use my credit card and then pay it ALL when it's due to avoid interest fees.

 

[mk378]

On all but the lowest subprime cards, if you buy things then pay the full balance every month, no interest is charged.

Auto loans are also structured as simple daily interest. You have the right to pay more or pay off in full at any time, and it will immediately save interest.

 

[ecotourist]

I'm what is called a free loader. I pay for most things by credit card and then having used their money for days to weeks, always pay the whole balance by the payment due date. They never get to charge me interest.

 

[Quattro Pete]

AFAIK, the way that your credit card payments are applied to your balance is that any accrued interest gets paid first, and then any leftover payment amount is applied towards the principal, so the larger the payment that you make, the more principal you're going to be paying off.

 

[PandaBear]

I was talking to a friend of mine about why to avoid credit card debt. I was explaining credit card debt vs say, an auto loan. I told her most credit cards charge 20-30%+ interest and that my auto loan is only 2%, explaining principals, interest, etc.

Something I always wondered, can you pay towards the principal of a credit card debt, such as instead of making the min payment, pay several hundred dollars? She'd asked me that and I honestly told her I have no idea, but it was definitely some food for thought. I avoid credit cards like the plaque, as to only keep them for things that require credit cards.

Any unpaid debt of this cycle's principal and interest becomes the next cycle's principal. So it doesn't matter.

 

[Quattro Pete]

can you pay towards the principal of a credit card debt, such as instead of making the min payment, pay several hundred dollars?

You can, and you SHOULD. Otherwise, if all you do is make minimum payments, you'll be making those payments all the way to the grave.

 

[dadto2]

If you pay the entire balance of your credit card every month by the due date, you are charged no interest. As soon as you carry a balance, you lose the interest free grace period on the entire balance, including brand new transactions. You can make payments in any amount you like, as long as they are equal to or greater than the minimum. You may also make multiple payments per month. For example, if you get paid 4x per month, and can contribute $25 per pay period to the debt, it's better to pay that $25 in weekly installments rather than paying the $100 at the end of the month. This will reduce the amount of interest you pay in the long run. And remember, the long run is how credit cards kill you.
If you have a credit card with a balance, STOP USING IT IMMEDIATLY. There is no reason that you should be paying interest on brand new charges, use cash or a debit card for new purchases until you get the CC balance to zero.

 

[Wolf359]

I also automate my credit card so that it automatically pays the full amount every month so I don't even have to remember to pay the bill. Then you never end up paying any interest. If you can't afford to pay off the full balance every month, you can't afford to buy it to begin with.

 

[brianl703]

There is one exception to this. Sometimes credit card companies will offer to transfer a balance to your credit card at a low or 0% interest rate. This sounds like a good deal, but the fine print in your credit card term and conditions usually says something like the following:

"Payments are applied to the balance with the lowest interest rate first".

So, if you had any balance on that credit card at all, you won't be able to pay it down until after you've paid down the balance you transferred to the card. And it will accrue interest the entire time that you aren't able to pay it down.

 

[JMJNet]

If you pay the minimum in CC, you pay mostly the interest but not even all the interest.
The interest is started to accumulate after you don't pay in full on the first bill after the charge, the total interest will include the interest from the day it is charged.
So the interest will keep accumulating and compounding on top of the principal the longer it takes to pay and the balance keeps growing when paying the minimum amount.
Imagine with 29.99% per year, means 1.5% keeps adding and 1.5% on top of the principal + 1.5% from previous month and so on.

Car loan usually add the simple interest on top of the principal then divided by payment terms.
So, say principal is $1000, interest is 10% per year for 5 year.
$1000 + 5*10% (which is $500) so the total loan will be $1500 divided by 60 month, is the monthly payment.
That is why the car loan officer always said, "I am with you with the lowest payment" which means you pay more interest because the term is longer.
Once this is done, there is no advantage in paying early other than less check or direct debit monthly or the chance for penalty to paying late.

standard disclaimer: I am not financial planner, I am an engineer who likes not to be stupid with my finances.

 

[FordMan59]

You can pay any amount any time you want up to and including the full balance. I use credit cards a lot for everyday purchases then just write one check and pay everything off.

 

[nwjones18]

I also automate my credit card so that it automatically pays the full amount every month so I don't even have to remember to pay the bill. Then you never end up paying any interest. If you can't afford to pay off the full balance every month, you can't afford to buy it to begin with.

Amen... I carry some cash "just because" but I pay for absolutely everything with my CC then they auto draft the full balance every month. I get from 1-5% cash back and that adds up fairly fast.

 

[Wolf359]

Amen... I carry some cash "just because" but I pay for absolutely everything with my CC then they auto draft the full balance every month. I get from 1-5% cash back and that adds up fairly fast.

I like cash for small purchases but nowadays with the shortage of coins, I've even using the credit card for small $5-$10 purchases. The local hardware store would give me dirty looks whenever I paid with a credit card so I switched to cash. I only use them for small emergency items, any big ticket item, it was worth the trip to Home Depot or Lowes so I figure I mind as well save them the swipe fees on small purchases. I don't mind using a credit card at McDonalds for a $1 soda though.

 

[SwampSurvivor]

I'm what is called a free loader. I pay for most things by credit card and then having used their money for days to weeks, always pay the whole balance by the payment due date. They never get to charge me interest.

Same! I only use the credit card for convenience!

I used to use my debit card, but that physically broke. All of the bank branches are closed so they won't let anyone in, but they won't issue a new debit card over the phone.

 

[nwjones18]

Same! I only use the credit card for convenience!

I used to use my debit card, but that physically broke. All of the bank branches are closed so they won't let anyone in, but they won't issue a new debit card over the phone.

I used to use my debit card some, but I realized that if someone steals your debit card and uses it money actually leaves your account. With a CC you just call them up and the fake charges are gone without any of your money being gone.

 

[Sonic]

Too many people get themselves into debt or even serious trouble because they’re not smart enough to own a credit card. If someone can’t pay their entire bill each month that SHOULD be a wake up call. You’re living beyond your means. Now, in an emergency I can understand charging more than you know you can pay off that month but it seems like most just charge away and don’t even think about it.
My wife and I charge pretty much everything we can because it’s convenient and we also get ‘cash back’ on purchases. But the entire balance gets paid every month. We Don’t go nuts and charge more than we make.
The key to having a credit card is never carrying over a balance. You’re basically just throwing money away paying interest and that’s totally avoidable.
A good rule about charging things is to think about what if you had to pay cash? Would you still do it?

 

[spasm3]

I'm what is called a free loader. I pay for most things by credit card and then having used their money for days to weeks, always pay the whole balance by the payment due date. They never get to charge me interest.

I am the same, in fact they pay me. I use my costo card for everything and i generally get back $800-$1000 every year, doing nothing special. I carry no balance.

Treat your credit card as cash, no balance, only buy what you can afford. Only pay for what you need lol !

 

[SevenBizzos]

CC Minimum payments are normally 1% of your balance + the month's worth of interest - until you reach a minimum. But yeah, you can put as much as you wish (above the minimum) toward the balance. And, yes, putting weekly and bi-weekly payments towards the balance is better than paying monthly.

 

[02SE]

I've never carried a balance month-to-month, so I've never paid interest. I do get perks for using the card, and there's the convenience. Since businesses rarely give a discount for cash, I use the card whenever possible.