Lending Education

Minimum Debt Payment: Changing Credit Behaviour


it good enough to make only minimum payment on your credit card? What are the benefits of paying more? Read this article to get your answers!

Any credit card, loan, or other financial product with a long term or revolving repayment – such as a financing agreement – will have a minimum monthly payment. Meet this minimum, and your payment is recognized – without penalty or repercussions against your credit score. However, rolling over your debt from payment to payment causes interest to accrue quickly over time, making it harder to break out of the payment cycle. Interest payments can keep building to the point that some borrowers end up paying more in interest over the term of their debt than the value of the initial loan itself.

Canadians Are Keen to Do Better

A recent survey by major credit bureau TransUnion shows that Canadians are, by and large, keen to do better than the minimum requirements on their debt payments. Eighty-eight percent of those surveyed said that they make more than their minimum payments “frequently.” This, despite the fact that Canadians are among some of the most individually indebted consumers worldwide today, suggests that more and more of us are becoming aware of the steps needed to effectively integrate the use of debt in our broader financial plans.

Knowledge Gaps Create Delinquency Problems

However, the survey data also showed a gap in knowledge. 39 per cent of the Canadians surveyed weren’t certain about the benefits that come with making more than the minimum monthly payments on their debt. In the U.S., this uncertain proportion of the population is lower at only 25 per cent.

Data Drives New Insights About Credit Use

TransUnion noted an interesting link between the likelihood of a delinquency or credit penalty and the amount paid against any given amount of debt at once. Paying the minimum was enough to keep most consumers at a sustainable “status quo” without falling behind – but the consumers who were able to pay off more than the minimum payment showed a noticeable trend toward being able to pay off more debt sooner and with increasingly large contributions over time. They were also the least likely to fall behind on payments in the event of an unexpected change in their financial situation.

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