What is a reason to pay more than the minimum payment due on your credit statement each month?

• A. To increase the minimum payment required next month
• B. To lower your credit score
• C. To reduce the total interest paid over time
• D. To avoid earning rewards points

Answer: (C)

Verified step by step guidance

1. Understand the concept of credit card payments: When you use a credit card, you are borrowing money from the issuer, and they charge interest on the outstanding balance if you do not pay it off in full each month.
2. Recognize the impact of paying only the minimum payment: Paying only the minimum amount due means the remaining balance will accrue interest, which increases the total cost of borrowing over time.
3. Learn why paying more than the minimum is beneficial: By paying more than the minimum, you reduce the principal balance faster, which in turn reduces the amount of interest charged in subsequent months.
4. Understand the relationship between interest and principal: Interest is calculated based on the remaining principal balance. Lowering the principal reduces the interest charged, saving money over time.
5. Avoid misconceptions: Paying more than the minimum does not increase the minimum payment required next month, nor does it lower your credit score. Instead, it helps reduce the total interest paid and can positively impact your financial health.