Credit card principal question.

[Jimmy_Russells]

In Canada they actually made a law where the bank has to put on the statement how long it would take you to pay off your balance if you only made minimum payments. It's usually like 40+ years.

Agree on putting stuff on credit card, and paying it off each month. That way you get several weeks to pay for it and also earn points or whatever. I use a credit card for pretty much any purchase over $5.

As far as I know just about the only loan that you can't 100% pay off at any time without a penalty is a mortgage, they usually allow up to about 20% of the original amount per year. But for credit cards, cars etc you can pay off at any time.

 

[Wolf359]

In Canada they actually made a law where the bank has to put on the statement how long it would take you to pay off your balance if you only made minimum payments. It's usually like 40+ years.

Agree on putting stuff on credit card, and paying it off each month. That way you get several weeks to pay for it and also earn points or whatever. I use a credit card for pretty much any purchase over $5.

As far as I know just about the only loan that you can't 100% pay off at any time without a penalty is a mortgage, they usually allow up to about 20% of the original amount per year. But for credit cards, cars etc you can pay off at any time.

Those are Canadian laws. I think the US laws are the same for the credit cards, they increased the minimum payments so it didn't take forever to pay them off if you just did the minimum. For mortgages in the US, most of them don't have pre-payment penalties so you can pay off the whole thing anytime. However some lenders don't get paid if you do it within 3 months as there's usually some clawback provision.

 

[HonorAndHonesty]

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.

They still get paid.....Just not by you.

 

[HonorAndHonesty]

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.

Wow, someone actually answered the OP question!

 

[Saabist]

I only have one credit card that I got about 40 years ago. I hardly ever use it (cash is king), but do pay the full balance when I do.

 

[miden851]

I have multiple cards and I rotate them accordingly to get that cash back; however, I don't carry the balance month to month

 

[GSCJR]

The local hardware store would give me dirty looks whenever I paid with a credit card so I switched to cash.

Some small shops don't like or even accept certain CCs. So what I do is, pay cash for anything under $25, this also helps me keep track of purchases when the statement arrvies so small amounts raise a red flag, the bigger ones are more obvious.

 

[OdysseyTypeR]

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.

This exactly. In my understanding, charging things to your card and then paying in full every month is also a good way to build up credit, which is important for a young guy like me who has no credit history but hopes to someday have the credit for a house for my family, newer toys, etc.

The cash back is a nice bonus.

 

[Number_35]

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.

Saw a newspaper story years ago saying that if you stopped making any new purchases on your credit card, and then made only the minimum monthly payment thereafter, it would take over 20 years to pay it off.

I would bet that doubling that minimum payment would pay it off in less than five years.

 

[mk378]

The law has been changed to require a higher minimum payment that now has a chance to retire the debt during the cardholders lifetime. Also the bank has to compute the estimated time to pay off by paying only the minimum, and disclose it on the statement.

 

[ZeeOSix]

As far as I know just about the only loan that you can't 100% pay off at any time without a penalty is a mortgage, they usually allow up to about 20% of the original amount per year. But for credit cards, cars etc you can pay off at any time.

I paid my mortgage off 5 yrs early with zero penalty. Maybe it varies by loan type, but mine was a standard conventional loan.

 

[ZeeOSix]

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

It matters if payments are larger/extra like the OP asked, because it reduces the interest charge on the next payment.

 

[raburn2906]

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.

Find one with a cashback reward, pay off the balance every month and you can typically earn 1-5% on your purchases. Used wisely, you can beat the credit cards at their own game.

 

[OdysseyTypeR]

Find one with a cashback reward, pay off the balance every month and you can typically earn 1-5% on your purchases. Used wisely, you can beat the credit cards at their own game.

This is what I do. They’re all out to get you so why not get them first?

 

[Jimmy_Russells]

I paid my mortgage off 5 yrs early with zero penalty. Maybe it varies by loan type, but mine was a standard conventional loan.

Here the way it works is most people typically sign up for a five year term. It's not normal to have a 30 year term like in the US. You will have a thirty year amortisation if you want but your mortgage is still typically only a five year term (you can do less if you choose but most people do five).

So within that five years, you can usually only pay down 20% of the original mortgage amount per year. After the five years are up, you are free to do whatever you want, you can even switch banks, pay down a lot more etc etc.

They do also have open mortgages where you can pay down as much as you want whenever you want, or just bail on the mortgage altogether early if you so choose, but the interest rate on those is typically higher than a closed term.

 

[Wolf359]

Here the way it works is most people typically sign up for a five year term. It's not normal to have a 30 year term like in the US. You will have a thirty year amortisation if you want but your mortgage is still typically only a five year term (you can do less if you choose but most people do five).

So within that five years, you can usually only pay down 20% of the original mortgage amount per year. After the five years are up, you are free to do whatever you want, you can even switch banks, pay down a lot more etc etc.

They do also have open mortgages where you can pay down as much as you want whenever you want, or just bail on the mortgage altogether early if you so choose, but the interest rate on those is typically higher than a closed term.

It's the exact opposite in the US where you have Fannie Mae and Freddie Mac. Most of the rest of the world does 5 year ARMs which is what you're talking about with a prepayment penalty. The US just does 30 year fixed rate mortgages, rarely do people do 5 year ARMs. Right now the 30 year fixed is about 3/8 of a point higher than a 5 year ARM. With historically low interest rates, it's best to lock in a 30 year at this point. With no prepayment penalty and no points/no cost refi out there, you can just refi whenever the rate drops 1/8 of a point if you like, the mortgage lender typically doesn't get paid until you've had the loan for 3 months so you just keep the loan for at least 3 months before doing a refi if the rates drop again. Knew a guy that did that 8 times in 5 years. On average people in the US refi every 3 years or so. The key difference is that in the US, Fannie/Freddie buys the mortgages and sells them on the open market. The banks aren't holding the loan, they make a fee when they make the loan. They can make as many loans as they like and then just sell it to Fannie/Freddie so they're not holding it for 30 years, they're just sitting out there on the bond market.

 

[GSCJR]

Find one with a cashback reward, pay off the balance every month and you can typically earn 1-5% on your purchases. Used wisely, you can beat the credit cards at their own game.

Thanks for the advice, I actually did that thanks to BITOG!

 

[1978elcamino]

Credit card interest is calculated on "average daily balance" vs traditional loan interest. In the end, credit card interest you pay is SUBSTANTIANLY more than any other loan interest. The banks are basically printing money on those who do not pay their balance off in full every month.

 

[Benzadmiral]

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 here. And I'm paying the current car off as fast as possible, as I did with my last two cars. Nice to drive sans car payment.

 

[KneeGrinder]

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.

I have about 8-9 cards, I use 2 mainly except when they send me a notice they are going to close my account due to inactivity. All of my cards have $0.00 balance except for my 2 monthly usage cards which I pay off at statement time. All my credit cards probably are worth 80K and count as an open line of credit and help your credit score. I really don't much care about the credit score, I will never barrow any money! I just want to keep the cards.

Normally my running CC monthly tab is near $1500/2K It's about every 2 years and I have enough points to make a $1500.00 CC payment. "Works for me" They probably don't like it...lol