Guide to Credit Card Minimum Payments

Monday, September 9th, 2019
Updated: September 9th, 2019
The content is accurate at the time of publication and is subject to change.

After you make purchases with your credit card, there always comes a time when you have to foot the bill. A monthly credit card statement usually contains a lot of numbers that taken together make up your payments. Of course, you’d better understand and monitor them all, but there is one number that just calls for attention – the minimum credit card payment.

What is the Minimum Credit Card Payment?

When you get a credit card bill, you can see your entire balance with all interest and fees if there are those. But the good news is you don’t have to pay it in full without fail. All issuers determine monthly minimum payments that are lower than the whole credit card debt.

A minimum payment is basically an irreducible amount card owners are supposed to pay for their previous spending. Any credit cardholder has an obligation to make these minimum payments each month if they’ve made some purchases before and now carry a balance. They accept this when signing a credit card agreement.

How is the Minimum Credit Card Payment Calculated?

First, different issuers may set different minimum payment amounts. Secondly, it may vary depending on the credit card. For example, Discover cardmembers may be charged a minimum of $20, 2% of the full balance, or $25 plus new interest and late fees. Other issuers may calculate the minimum payment as a percentage of the balance, typically 2%-5%.

Still, there is one most common formula for calculating the minimum payment: all interest applied + 1% of the entire balance. Anyway, in order not to make unsupported assumptions, simply open your credit card terms, which contain full detailed information.

What If You Pay Only the Minimum?

While, as mentioned above, paying off the entire balance at a heat is not obligatory, making only minimum payments all the time isn’t the best idea either. The main reason is the interest that will accrue to the balance you keep. But even if your card comes with a 0% intro APR period, do not rush to relax. Another reason for paying more than the minimum is the extension of the debt repayment process.

When you do the math concerning making minimum payments on a $1,000 balance with a 17,6% APR (the September 2019 average credit card APR on purchases according to CreditCards.com study) applied, you will see that paying off this debt without increasing it with another spending will take you about 2 years. The overpayment for this period will total almost $170. But in case you add $100 more to the minimum payments, you will deal with the whole amount within half a year and overpay about $50-$60. The benefit is obvious.

Credit card issuers are now required to include a minimum payment warning in credit card statements. It should show cardholders how long it will take to pay off their balance and what the total amount they will pay in case of only making the minimum payments each month. The warning table must also indicate the monthly payment needed to pay off your balance in 3 years, the total amount you’ll pay in this case and the savings you’ll receive compared to paying only the minimum.

What If You Pay Less Than the Minimum?

Unfortunately, paying less than the required minimum payment is equivalent to a missed payment. From this moment, you will have to put up not only with APRs applied to the remaining balance but also with late payment fees or penalty fees. These charges may even enlarge the amount of your minimum payment by being added to it next month. Such an increase may be rather significant. In addition to all this, the issuer may increase your interest rate.

Of course, the best advice is to never miss payments or pay less than needed as far as possible. Nevertheless, if you find yourself in such a situation, it will not be superfluous to contact your bank and warn them. It is even desirable to do this in advance – as soon as you realize that you won’t be in time with the full amount. There is a possibility the issuer will agree to abstain from reporting this delinquency to the credit bureaus if it doesn’t exceed 30 days.

What is the Conclusion?

When you receive a credit card bill, you’d better by all means pay it entirely to avoid extra interest in the future and get rid of your debt as soon as possible. But if for some reason you can’t afford it this month, make sure you at least meet the minimum payment requirement.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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