28. Which of the following credit card users is likely to pay the GREATEST dollar amount in finance charges per year, if they all charge the same amount per year on their cards?
a.) Jessica, who pays at least the minimum amount each month and more, when she has the money.
b.) Vera, who generally pays off her credit card in full but, occasionally, will pay the minimum when she is short of cash
c.) Megan, who always pays off her credit card bill in full shortly after she receives it
d.) Erin, who only pays the minimum amount each month.Paying only the minimum on a credit card does not make a dent in the actual balance and barely covers the debt service charges often called interest. The interest on the balance continues to accrue while the minimum continues to be less than what is needed to pay off the actual balance. In other words, paying only the minimum each month actually gets you deeper in debt with each successive month even if you do not use the card.
Jessica is the next least likely to ever pay off her balance. Doing so would require much more dedication than paying ³more, when she has the money². Vera does the best for the wrong reason. Credit card management is a strange mix between using credit wisely and using it cost effectively. Rather than paying the minimum, she should shoot for at least paying half of the remaining balance. Megan uses her credit the best employing the money offered as sort of an interest free loan. Strangely, credit rating agencies such as FICO, the standard bearer for credit scores, do not think this type of behavior shows the wisest use of credit. They would like to see you manage a balance every now and again.
The best credit management is to pay two to three times the minimum or half the balance if you are short of cash. List your credit card expenses as entries into your check register to see where you stand and whether you have the financial wherewithal to pay off the balance or at least half of it at the end of the month.
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