1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

The One Dollar Credit Card Payment Myth

By

Ever been given this advice "Send at least one dollar to your credit card company. They can't sue you as long as you send something - anything"?

Unless your minimum payment is $1, this advice is setting you up for failure.

Most credit card issuers calculate the minimum payment as a percentage - between 2 and 5% - of your balance. Even if your balance is low enough that your minimum payment is calculated at $1, most credit card agreements have a minimum minimum payment. For example, your agreement might state "The minimum payment is 2% of the balance or $5 whichever is greater."

Anytime you pay less than the minimum, you're in violation of your credit card agreement and your creditor considers your payment late. Your creditor can charge a late fee, increase your interest rate, refer you to collections, charge-off your credit card, or report a delinquency to the credit bureau. They usually do all of the above.

Let's humor the advice and pretend that you could send a $1 payment with no penalty from your creditor. Why would you? Finance charges would cause your balance to increase and you might never pay off the balance. That's not what you want.

You should make all efforts to pay the minimum on your accounts. If you can't, contact your creditor to make other arrangements.

©2014 About.com. All rights reserved.