What Is a Credit Card Minimum Payment?
A minimum payment on a credit card is the smallest amount you can pay each billing cycle without penalty. Making the minimum payment on time helps you avoid penalties and fees and keep your account in good standing. However, it’s best to pay your balance in full each month to avoid interest entirely.
How are credit card minimum payments calculated
Credit card minimum payments are based on your interest rate and current balance. The amount will vary from month to month based on your statement balance. It’s usually calculated as either a flat percentage of your statement balance or a percentage plus the cost of interest and fees. The calculation varies between credit card companies and credit card agreements. You can see how your minimum payment is calculated by checking your card’s terms and conditions.
If your card uses a flat percentage for minimum payments, your minimum payment could be anywhere from 2% to 4% of your total balance. Your interest and fees would be deducted from the total percentage calculated. If your credit card company uses a percentage plus the cost of interest and fees it would be a lower percentage of around 1% plus fees. In some cases — like if your account balance is under a certain amount — you may just owe a flat amount like $25 or $35. On the other hand, if your balance is smaller than the fixed minimum payment amount, you’ll owe your full balance.
Minimum payment cost
According to a recent LendingTree study, you could end up paying more than double your credit card balance if you decide to make minimum payments only. For example, if you owe $2,000 on a card with a 20.99% APR and make only minimum payments, it would cost you $4,456 (including $2,456 in interest) and more than 11 years to pay off your credit card. If you have $5,000 in debt and have a 20.99% APR, it would cost you a total of $12,703 and around 19 years of minimum payments to pay your balance in full.
How to calculate minimum credit card payment
Flat percentage
Let’s say your credit card company uses a flat percentage of 2% to calculate your minimum payment and you currently have a credit card balance (including interest and fees) of $1,000.
Calculation
Percentage + interest + fees
Let’s say your credit card company uses the percentage + interest + fees model to determine your minimum payment. They use a percentage of 1%, your balance before interest and fees is $1,000 and you’ve accrued $15 in interest and $20 in late fees.
Calculation
What is my minimum credit card payment?
To find your minimum payment and other credit card terms, look at your monthly credit card statement. Your statement is usually mailed to you or available in your online account. You can also contact your bank over the phone to ask about your minimum payment.
According to the Credit CARD Act of 2009, credit card companies are legally required to provide a minimum payment warning on each billing statement. This tells you the total time it will take to pay off your credit card balance and how much interest you’ll pay by only making the minimum payment each month. Your minimum payment can change each month based on your balance, late payment fees and if you’ve missed any past payments.
Tip
Can you pay less than minimum payment on a credit card?
Paying less than the minimum can have serious consequences. Any payment below the minimum is considered a missed payment and can negatively impact your credit score and history. Your missed payment will be reported to the three major credit bureaus and result in a negative mark on your credit score that can last for seven years.
Any payment is better than no payment, because it shows credit card companies that you are trying to pay off your debt. Making payments of any kind can also help your case if you need to request a credit card forbearance or negotiate a debt settlement.
How do minimum payments affect your credit?
Your payment history is the most important factor in your credit score, making up 35% of your overall score. Making at least the minimum payment each month helps maintain a good payment history.
However, paying only the minimum amount each month may have a negative impact if you have a large amount of debt. 30% of your credit score is made up of your credit utilization ratio, which is your amount of debt compared to your available credit lines. It’s important to keep this number under 30% to maintain a good credit score.
How to lower the minimum payment on a credit card
The best way to reduce the minimum payment on your credit card is to reduce your credit card balance. The higher your balance is, the higher the minimum payment you’ll owe. Here are a few ways to reduce your balance:
Make payments higher than the minimum payment
While you can get by with a minimum payment, you won’t make much progress in paying down your credit card balance. It’s always best to pay more than the minimum to reduce debt and lower your minimum payments in the future.
Make fewer purchases with your card while paying off the balance
This will ensure that you don’t pile up more credit card debt while you work on paying down your balance.
Rework your budget and put extra funds toward paying off your balance
Adding credit card payments into your budget can help ensure that you pay more than the minimum amount due each billing cycle.
Use a balance transfer card with a 0% intro APR
A balance transfer credit card allows you to move a balance from one credit card to another. If you have a high APR on your credit card, a balance transfer card can give you a chance to pay off your balance with an interest rate for a certain time period.
Should I pay the minimum payment on my credit card?
While you can pay the minimum on your credit card each month, it’s best to work out your budget to allow you to pay more than the minimum each month. If you’re able to, it’s always best to pay your balance in full each month to avoid interest and racking up debt that may harm your credit score.
Frequently asked questions
Your credit card minimum payment will increase if your credit card balance has increased since your last billing cycle. To see your most up-to-date transactions and payments owed you can check your credit card statement. This shows all transactions made in a billing cycle that usually lasts 28 to 31 days.
Your credit card minimum payment is based on your credit card balance and is either a flat percentage of your balance or a percentage plus interest and fees. The average flat percentage is anywhere from 2% to 4%, while the average percentage plus rates and fees is 1%.
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