Minimum Payments

We show you why you must always do your best to pay as much as you can whenever possible, over the required minimum payment to get ahead in your debts quicker.

You’re doing a huge disservice to yourself by paying just the bare minimum

A Big Trap

High credit limits with low monthly payments are a trap. Minimum payments generally range from 2.5% to 3% of the average monthly balance, so you can run up a very high debt, while still keeping the debt current by paying low monthly amounts.

Debt Rises

The debt just rises making only the minimum payments.

Credit cards often have high interest rates from 15% to 30%. Making only minimum payments results in 25 to 30 years of payments to pay off the balance, up to 2 to 3 times the original amount charged.

Harder to Pay

Compared to the balances, minimum payments are tiny for a debt to be current . Reaching your credit card limit lowers your credit score. A lower credit score results in a lower credit limit with a higher interest rate, making it harder to pay off a debt.

Forever to Pay

A $45,000 credit card debt, at 16.99% interest, with a minimum payment of 2.5%, takes 29 years to pay in full. Total interest is $57,125 plus $45,000 of original purchases, is $102,125. Minimum monthly payment for $45,000 balance is over $1,100 a month

If the Minimum Payment is All I Make on My Credit Card, What Would Occur?

When you only pay the minimum payment and rack up interest charges, you’ll have your debt for a longer period of time. This can put your credit score at risk.

Making the minimum payment on your credit card debt won’t get you very far toward reducing it. Late fees are avoided and your account is kept in good standing when you’re only making the minimum payment on your credit card debt, but that’s about all it does.

It would be wrong to say you should never do so under any circumstances because making only the minimum payment for a few months can be a way to conserve cash in the short term when you’re experiencing a financial emergency. However, if it were to be used as a long-term strategy it could easily be a recipe for disaster.

Your debt will take much longer to pay down

Credit card issuers generally like to set minimum payment requirements at the lowest possible levels. You’ll generally owe whichever is greater from a percentage of the balance and a fixed amount — often $25. Besides any accrued fees and interest, some cards require you to pay only 1% or 2% of the balance each month. Late fees are avoided when you make the small payments of your minimum payments on time, but you still won’t make any real progress on paying down your balance.

You’re affected like this:

You must look at the “Minimum Payment Warning” on your credit card bill. It includes a table that shows how many years you’ll need to pay off the balance of your credit card debt and how much money it requires if you make only the minimum payment each month. By just paying more than the minimum payment you’ll significantly shorten that period.

“If you pay twice the amount of the minimum payment you could be cutting that repayment period on your credit card debt in half,” says Ed Mierzwinski, the consumer program director of the U.S. Public Interest Research Group, a federation of nonprofits, who has lobbied for laws requiring these disclosures.

Bigger interest charges will be racked up by you

Along with your credit card debt balances, your interest charges will also grow when you’re only making the minimum payment, unless you’re using a 0% APR card. You’ll barely wipe out last month’s interest when you make only the minimum payment on your credit card debt. And you’ll fall further and further behind if you keep charging more items to the card yet continue to make just the minimum payments.

“You’re running on a debt treadmill if you’re only making the minimum payment on your credit card debt,” Mierzwinski says. “No matter how many times you pay, and you pay, and you pay…, you never pay your credit card debt off.”

You’re affected like this:

Divide your card’s annual percentage rate by 12 and multiply it by your average balance, when you want to estimate your interest charges. When your card has a 21% APR, for example, your monthly interest rate is 21% divided by 12, or 1.75%. Multiply it by the balance of the credit card debt you’re carrying. If you paid only the minimum payment now and, let’s say, you have a credit card debt balance of $20,000, you’d owe about $350 in interest next month.

By paying more than the bare minimum payment against the balance of your credit card debt , you can start next month with less debt.

Your credit scores could be negatively affected

When your credit utilization ratio climbs — the percentage of your credit you’re using, every time the balances of your credit card debt do. Your credit utilization ratio is a major factor in your credit score, therefore, your credit can be badly damaged by high balances. To be eligible for credit cards with the best terms and affordable loans is made even tougher by that. Since employers and landlords commonly review applicants’ credit, this can even negatively affect your ability to find a job or rent an apartment.

On any given card it is best to use less than 30% of your credit limit. It’s even better if you can use less.

Focus on bringing down your balances as much as you can if your credit card debt is bumping up against your credit limit. If at the end of the month you feel squeezed for cash, you should try to pay your credit card bill right after payday. Put extra cash toward your credit card debt by volunteering for more shifts at work, if you’re able to.

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