Why Minimum Payments Keep You in Debt
Card issuers set the minimum payment low on purpose to keep it affordable. The side effect is that it keeps you in debt for years. Many issuers calculate the minimum as the larger of a small fixed amount or a percentage of the balance plus that month’s interest.
Key points
- As your balance falls, the minimum falls too, so payoff keeps stretching out.
- Most of an early minimum payment goes to interest, not to the balance.
- Paying a fixed amount equal to your first minimum shortens payoff substantially.
- Your statement must show how long payoff takes if you pay only the minimum.
A worked example
Take a $4,000 balance at 22.9% APR with a minimum of 1% of the balance plus interest, with a $25 floor. The first minimum is about $116. Paying only minimums takes roughly 17 years and 6 months and costs about $6,545 in interest. Paying a fixed $116 every month instead finishes in about 4 years and 9 months and saves about $3,975.
Common mistakes
The mistake is treating the minimum as the recommended payment. It is the lowest amount that keeps the account in good standing. Pick a fixed amount you can afford and keep it the same even when the minimum drops.
Try the calculators
Credit card minimum payment
See how long minimum payments take to pay off a card.
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Months to payoff and interest saved by extra payments.
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Find the payment that clears a debt by your deadline.
Frequently asked questions
Why does my minimum change each month?
Because it is usually based on a percentage of your current balance and the month’s interest.
Does paying the minimum hurt my credit?
Paying on time helps your payment history, but a high balance relative to your limit can still lower your score.