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29 Juillet 2019

The Danger of Small Monthly Payments

Many Canadians do not pay off their credit card balance every month. In fact, many only pay the minimum monthly amount required. Of course, the amount changes according to the supplier, but no matter how much it is, it does not mean that you should only pay this amount.

Why Is There a Minimum Payment?

Each credit card issuer defines its own terms and conditions and imposes a minimum payment requirement on cardholders. This way, banks ensure that lenders are liable and will make the payment.

The Issue

By only making the minimum payment, you extend the term of the loan and allow creditors to make more money. This only extends the repayment period by increasing your debt as your interest will increase.

These minimum payments result in a debt cycle because the longer you delay your payments, the higher the interest rates go.

How to Get out of It?

The first solution to avoid incessant debt is to pay off most of the balance. Ideally, no amount should be carried forward to the next month. It is essential to pay the total amount as soon as possible, because multiplied interest is your real enemy.

You may also decide to consolidate your debts to get a much more advantageous rate and reduce your monthly payment. This way, you will consolidate your loans so that you will only have one monthly payment repayable at a lower interest rate.

Do Not Repeat the Cycle

Once your debts are paid off, it will be important not to fall back into your bad habits. Do not omit any payment and pay the amounts in full. If you have the bad tendency to get into debt, you will need to regain your financial health and reduce your expenses. Don't fall behind in your payments and stick to a budget.

You don't know how to get out of it? Feel free to contact us and we will offer solutions adapted to your needs and situation.

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