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Published May 18, 2023
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6 minutes

Credit Card Minimum Payments: How They Work

Making only the minimum payment is convenient but keeps you in debt longer, and can put your credit score at risk.

Making the minimum payment on your credit card is required to avoid penalties. Making only the minimum payment is also a valid survival strategy for conserving cash in an emergency. But as a long-term strategy, paying the lowest required amount can spell trouble.

While they may keep your account in good standing and let you avoid late fees, minimum payments don’t go very far toward reducing your credit card debt.

What is a credit card minimum payment?

A credit card minimum payment is the smallest amount of money you can pay to keep your credit card in good standing. You’re contractually obligated to pay this minimum, so failing to do so may result in a late fee. In some cases, your card issuer may raise your interest rate if you miss or underpay the minimum payment. This is also known as a penalty APR.

How credit card minimum payments are calculated

The minimum payment is either a fixed amount — often $10 — or a percentage of the balance, whichever is greater. Some cards require you to pay just a percentage of your credit card balance — typically between 1% to 3%. For example, if you had a $2,000 credit card balance, a 3% minimum payment would be $60. Others may require a percentage, plus any late fees and accrued interest. 

Nerdy tip

You can learn more about how your card issuer calculates minimum payments in your cardholder agreement. You can find the agreement online when you log into your account. If you’re having trouble locating your agreement, call your card provider to request a paper or digital copy.

    What happens if I only make the minimum payment?

    Let’s say you owe $5,000 on a credit card with a 20% interest rate, and the minimum payment is a flat 3% of your overall balance (or $10, whichever is higher). 

    Here’s how two potential payment schedules would shake out, according to the Government of Canada credit card repayment calculator.[1]

    Minimum payment only

    Total time to pay off balance20 years, 11 months
    Total interest paid$5,991
    Total paid$10,991

    Let’s see what happens when you pay more than the minimum.

    $50 more than the minimum payment

    Total time to pay off balance5 years, 3 months
    Total interest paid$2,304
    Total paid$7,304

    Finally, let’s see what happens when you pay a fixed amount each month. 

    $200 fixed payment each month

    Total time to pay off balance2 years, 9 months
    Total interest paid$1,522
    Total paid$6,522

    The bottom line: Paying more than the minimum balance means your money is more effective, you generate less interest and you’ll pay off your credit card at a faster rate.

    Credit card repayment calculator

    Use our fixed payment calculator to find out how long it’ll take to clear your balance.

    3 reasons why you should pay more than the minimum

    Sometimes you can only make the minimum payment, and that’s okay — so long as it doesn’t become a habit. If you can pay more than the minimum, you may be surprised by the results. 

    1. You can pay off debt quicker

    Credit card issuers tend to set minimum payment requirements at rock-bottom levels. Making these small payments on your credit card bill will let you avoid late fees, but you won’t make any real progress on paying down your balance. If you pay more than the minimum, you can significantly shorten the length of time it’ll take to pay off the debt in full. 

    Using the above example, if you owe $5,000 and only make the 3% minimum payment, it’ll take over 21 years to pay off the debt — and that’s assuming you don’t charge anything else. However, if you pay just $50 more than the minimum payment each month, it’ll take roughly five years.  

    2. You’ll end up paying a lot more interest

    Even if you’re using a card with a lower-than-typical interest rate, your interest charges will grow — quickly — along with your balance. Make only the minimum payment, and you’ll barely wipe out last month’s interest. And if you keep charging items to the card, you’ll fall further and further behind.

    Again, using the above example, if you owe $5,000 and only pay the 3% minimum payment, you would incur $5,991 in interest as you paid off your credit card. If you paid an additional $50 monthly, you would generate $2,304 in interest — less than half the amount of interest accrued in the first example.

    3. Your credit score could suffer

    When your credit card balance climbs, so does your credit utilization ratio — the percentage of your credit you’re using. And because your credit utilization ratio is a major factor in your credit score, high balances can drag it down. However, an overpaid credit card, one that has a negative balance will not have a negative impact on your credit score.

    Low scores can make it harder to qualify for affordable loans and credit cards with the best terms. It can even affect your ability to find a job or rent an apartment, as employers and landlords commonly review applicants’ credit history.

    Whether you have one or multiple credit cards, it’s best to use less than 35% of your total combined credit limit. If you can use less, that’s even better.

    Nerdy tip

    If you feel squeezed for cash at the end of the month, try paying your credit card bill right after payday.

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      More tips to pay down your credit card bill faster

      If you’re eager to pay off your credit card, and have the financial flexibility to explore other options, these three payment tips may help.

      1. Make smaller payments more often. Credit card interest is based on the average daily balance of your card. Splitting your monthly payment into two bi-weekly payments will reduce your average daily balance and cut down on excess interest charges.
      2. Set up autopay. Sometimes it’s helpful to set-it-and-forget-it. If available, create an automatic payment of more than the minimum amount each month — the payment will be part of your monthly outgoings rather than something you have to do manually. 
      3. Switch to another card. Balance transfer cards offer 0% introductory interest rates for a set period of time — typically six to 12 months. You won’t accrue any interest during this period which means every payment you make will go directly towards the principal balance.

      Frequently asked questions about credit card minimum payments

      What is a credit card billing statement?

      A credit card billing statement is a monthly statement of your account. Statements are typically available in paper or electronic form. Each statement typically includes your total account balance, current available credit and the minimum payment amount. Billing statements also include a list of all transactions that have taken place during the billing period.

      What is credit card autopay?

      This feature allows you to set up credit card payments that will be automatically deducted from  a linked bank account on a set schedule. Most card providers are equipped to offer an autopay option. You can elect to pay the minimum or a set amount of your choice.

      Article Sources

      Works Cited
      1. Government of Canada, “Credit card repayment calculator,” accessed May 17, 2023.

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