Credit Card Minimum Payments: How They’re Calculated and Why You Should Pay More

If it feels such as you’ve been paying down your credit card steadiness endlessly, it is potential you have solely been making minimal month-to-month funds. Your minimal cost is the bottom quantity your supplier will settle for each billing cycle.

While making minimal funds will stop late charges and reviews of lacking funds to credit score bureaus, it normally is not going to repay your bank card steadiness anytime quickly (relying on how a lot you owe). It’s vital for bank card customers to grasp how minimal funds work to allow them to make the very best selections to pay down their debt.

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How are bank card minimal funds calculated?

The minimal cost is the bottom quantity you may pay in any given month to keep away from penalties and charges. Credit card corporations typically use 4 completely different strategies for calculating minimal funds, which can rely on the steadiness and rate of interest of the bank card. Here are the methods by which yours is perhaps calculated.

Percentage of your steadiness: If you owe a major amount of cash in your bank card, your minimal cost will doubtless be round 2-3% of your steadiness, resident professional and licensed public accountant Howard Dvorkin informed CNET. However, it is also as little as 1%.

“Credit card corporations make more cash when the minimal cost is decrease so extra money goes in direction of the rate of interest and much less in direction of the principal,” Dvorkin defined.

Percentage of steadiness plus curiosity and charges: Some bank card corporations will calculate your minimal cost by combining a decrease share of your steadiness — typically 1% — plus curiosity and charges from the previous billing cycle.

Flat charge: If the unpaid steadiness in your bank card is comparatively low, your minimal cost could also be a set quantity. There’s no normal amongst bank card corporations, however from a survey of eight main bank card issuers, we discovered that flat charges ranged from $20 to $41.

Full cost: If your steadiness is decrease than what the bank card firm would cost as a flat charge, as an example $15, your minimal cost will in all probability be the complete steadiness for that month.

Your minimal cost and how your bank card firm calculates it needs to be included in your bank card settlement.

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Your financial institution’s web site is one solution to discover your bank card settlement.

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How can I discover my bank card settlement, and what’s in it?

Your bank card settlement will embrace an evidence of precisely how your minimal cost will probably be calculated.

“Every bank card firm is remitted by regulation to provide the bank card settlement,” Dvorkin mentioned. You can request the settlement by way of e-mail, snail mail or discover it in your financial institution’s web site. 

The Consumer Financial Protection Bureau additionally hosts a library of thousands of current credit card agreements from all bank card corporations with greater than 10,000 accounts, as required by the Credit Card Accountability Responsibility and Disclosure Act of 2009.

Here’s what else yow will discover in your bank card settlement:

  • What you should buy together with your bank card — as an example, a retailer bank card versus a GraspCard or Visa card
  • Your credit score restrict and the way it may change
  • Your annual share charge (APR, or your rate of interest) and the way it may change
  • Foreign transaction charges
  • How your minimal cost is calculated
  • How to pay your invoice
  • How your bank card use is reported to credit score bureaus
  • How your private information is shared
  • What modifications your issuer is allowed to make to your phrases and situations
  • How your bank card firm defines default and what meaning
  • What to do for those who lose your bank card
  • Info on closing your bank card account
  • What to do if in case you have a billing dispute

What occurs if I do not make the minimal cost every month?

If you do not pay the minimal quantity every month, bank card corporations will think about this a missed cost. In this case, you could possibly be charged a late price or incur a penalty APR, which is a excessive rate of interest that is triggered by a late cost. The bank card firm may additionally report your missed cost to the three credit score bureaus. When this occurs, the harm to your credit score can final for as much as seven years.

And the results can proceed to compound: “When you pay late, bank card corporations can hit you with larger rates of interest that will not drop,” Dvorkin mentioned.  

If you may’t make the minimal cost, contact your lender as quickly as potential to speak about your choices. For occasion, for those who’re ready for a paycheck to make your bank card cost, see for those who can transfer your due date till after payday. You may ask your bank card firm if they provide any aid applications.

Why ought to I pay greater than the month-to-month minimal cost?

Depending in your APR and steadiness, most of your month-to-month minimal cost is probably going going towards curiosity, and not paying down your principal. To put extra money in direction of your principal debt, you may must pay greater than the minimal month-to-month. 

The Credit CARD Act requires collectors to offer particulars in each month-to-month assertion about how lengthy it’s going to take to repay a steadiness for those who solely make the minimal cost required, and how a lot curiosity will accrue throughout that point. That warning should additionally embrace the month-to-month quantity wanted to repay your steadiness in three years and the whole quantity it could price utilizing that month-to-month cost. 

Your bank card assertion may even embrace how a lot of your steadiness is curiosity, what your principal steadiness is, and the APR that calculates the curiosity in your steadiness.

Dvorkin advises in opposition to solely paying the minimal quantity every month. “It’s a lure to maintain you in debt,” he mentioned. When you pay solely the minimal quantity, it will possibly trigger curiosity to construct and it may take longer to repay your complete steadiness.

Read extra: Credit Card No-Nos: 9 Bad Habits to Break in 2022

a credit card statement showing a minimum payment notice

Experts counsel paying greater than the minimal cost.


Let’s break it down. If you owe $10,000 in your bank card with an rate of interest of 18% and make minimal month-to-month funds of $200 (utilizing 2% of the steadiness), it’s going to take you greater than 50 years to repay your debt. In that point, you’ll have paid a hefty additional $28,397 in curiosity. That’s practically triple the quantity you initially owed.

Since your minimal cost relies on a share of your steadiness right here, as your steadiness decreases, so will your minimal cost. Making a fastened cost of $200 till your $10,000 steadiness is paid off would take lower than eight years and price you $8,622 in curiosity. That’s nearly $20,000 in financial savings. 

If you may’t pay your invoice in full every month, Capital One suggests paying as a lot of the steadiness as potential. Paying even double the minimal quantity may also help considerably.

Using the earlier instance of a $10,000 steadiness and 18% APR, for those who paid double your 2% minimal, or 4% of your steadiness every month, it could take 13 and a half years to repay your debt, however you’d pay solely $5,874 in curiosity.

“The larger your excellent steadiness, the extra curiosity you may pay, which may make it much more troublesome to climb out of debt,” mentioned Colleen McCreary, client monetary advocate at Credit Karma.

Looking for a brand new bank card? Here are the best cash-back credit cards and the best credit cards for everyday use.

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