Lending Club Blog

When Is It Acceptable to Pay Only the Minimum Balance on YourCredit Card?

This guest post was written by Henry Truc from Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @Henrytalksmoney and @GoBankingRates.

If you’ve ever had a credit card, you’ve probably been told that one of the worst things you can do is to just pay the minimum balance each month. Making only the credit card minimum payment means you’re sometimes paying twice or even three times as much for your purchases over a longer period of time.

From a practical standpoint, focusing on only the minimum monthly payment doesn’t make much sense. If you have the cash, chances are you’re not going to find an investment that will match the interest rate you’re being charged on your debt, at least without taking on significant risks. If you don’t have the cash, well, you really shouldn’t be spending that much on your credit card in the first place and should be finding ways to pay off that debt as soon as possible.

Any way you slice it, there are only a few instances where it should be acceptable to pay only the minimum balance on your credit card. Here are some of the few situations when it’s okay.

When to Pay the Credit Card Minimum Balance

In a perfect world, no one would have any debt and everyone would be able to cover everything with cash. In reality, though, there are times when carrying a balance just can’t be avoided or actually is the better option.

  • Emergency Savings: One of the worst situations is finding yourself with little or no money in your savings account–not spending money, but money stashed away in case of an emergency when your credit card just won’t do. If you need time to build up your cash reserves, it may make sense to just pay the minimum for a short while or consider the risks of using your credit card as your emergency fund.
  • Costlier Debt: Credit card balances are only one form of debt. You may have other personal loans, student loans, auto loans, a mortgage or maybe even another credit card that charges you a higher rate on your balance. Focusing on paying down debt with the highest interest rates first could mean having to pay only the minimum on some cheaper debt for the time being.
  • No Interest Periods: If you have a credit card with a 0% APR introductory period, then you have more flexibility on when you have to pay it off. Keep in mind, however, just because you’re not getting charged for the money you owe doesn’t mean you should be carrying a balance. You’d be surprised how quickly the amount you owe can spiral out of control, not to mention once the intro period is over rates usually get jacked sky high.
  • Investment Opportunities: This situation will probably never happen, but in some once-in-a-lifetime type of circumstances where you find an opportunity to take advantage of an investment with a return that outpaces your credit card interest, it may be acceptable to allocate your cash away from paying down debt to capitalize it. However, finding a risk-free investment is hard enough as it is, let alone one that produces such an attractive return.

Again, there are very few instances where only paying the minimum balance on your credit card is acceptable. The reason is because minimum payments are only a short-term solution to tide you over while you figure out your finances. Being debt-free is one of the major foundations of improving your financial management, so make sure that’s what you’re focused on.

You can even find more efficient methods to paying down your balance if you’re juggling multiple types of loan payments. Maybe consolidating them under a personal loan or trying out a peer-to-peer (P2P) personal loan can help to eliminate situations where you feel that you can only pay the minimum.

Saturday, January 29th, 2011 at 4:15 am

Comments (2)

  1. Kreiff:

    Great advice for sure…but I feel like in the current economy
    sticking to these principles can be difficult. If only the world
    wasn’t full of so many awesome things! I’d also add that if you’ve
    decided not to pay the full balance due to the fact that you’re on
    a 0% introductory rate, be sure to keep track of when that rate
    ends and be sure not to spend beyond your means to pay off the full
    balance before then. I know it’s common sense, but in tough
    financial times common sense often eludes the most intelligent

    February 1st, 2011 at 9:57 am

  2. Great post, its always a tricky game deciding which debt to pay
    first, or which makes the most sense. I think you can not go wrong
    attacking the highest APR debts first and working your way down.
    Great info.

    February 16th, 2011 at 12:59 pm


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