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Personal Finance FAQ

Personal Finance FAQ Series: Why Should I Pay My Credit Card Off Each Month When I Can Just Pay the Minimum Balance?

Today’s FAQ series post answers a question that a lot of us have about our credit cards:

Why Should I Pay My Credit Card Each Month When I Can Just Pay the Minimum Balance?

What questions would you like to see me answer? Leave me a comment and let me know!

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Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

2 replies on “Personal Finance FAQ Series: Why Should I Pay My Credit Card Off Each Month When I Can Just Pay the Minimum Balance?”

I agree 100% with you on the credit card debt… I always try to make sure to pay as much as possible, and ideally carry a zero balance (although this is not always possible). It is so tempting to pay $20 a month to credit cards, but the longer we do, the harder it will ever be to get back to even.

What I really struggle with is paying extra on my mortgage. With such a low interest rate I am constantly questioning whether or not I would be better off investing $300 a month, or paying an extra $300 a month towards my mortgage principle since I my interest rate is just 4%. For now I am paying extra on my mortgage, and I like seeing payments dropping off the end of my mortgage life.

A great way to motivate yourself to pay extra instead of just the minimum is to set up a simple excel spreadsheet that shows how long you will own your debt if you pay the minimum and update each month with what you actually pay. Dealing with the stress of debt is much easier when you can actually see that you are making a difference with over payments each month.

Perhaps you could do a video on paying extra on mortgage principle each month vs. investing that money into something like an index fund.

Thanks for the suggestion – that’s a great topic!

I’m risk-averse, so we paid off the mortgage as quickly as possible. There’s an after-tax fallacy regarding mortgage interest because people forget about the standard deductions.

You do the exact same thing that I did. We keep a budget on Excel and add a new worksheet each month. I had a worksheet at the end that showed how much we were paying extra each month and it also calculated how many months we’d lopped off of the end and how much less in interest we were paying.

I also suggest you and your wife talk about what it’ll be like to have no mortgage and really embrace that vision. It’ll help cement the vision in your mind and make it easier to avoid the lures of Monkey Brain along the way.

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