What Happens If I Only Make the Minimum Payment on My Credit Card?

What is the minimum payment on a credit card?

Not all credit card companies calculate the minimum payment the same. There are primarily three ways a credit card company will calculate the minimum payment:

• A flat percentage of your balance
• A percentage of your balance, plus interest or fees from prior billing periods
• A flat rate

For some companies, the minimum monthly payment may be as little as $20-$30. Other companies may charge a certain percentage of your total balance, such as 1%-3%, so the minimum would change each month. If you have a high annual percentage rate (APR), you may be asked to pay more.

Check your card’s terms to learn about how your particular lender calculates their minimum payment, and look at your credit card billing statement each month to see your own minimum payment and payment due date.

The primary downside to making only the minimum payment on your card is that the rest of the balance will continue to carry over to the next month, and this will happen each month until the full balance is paid off.

How are credit card minimums calculated?

By paying at the minimum on your credit card balance, you’re avoiding:

• Late fees
• Delinquency
• Penalty APR
• Damage to your credit score for making late payments

However, it’s not recommended to make paying only the minimum a common practice.

Say your card balance is $500, and the minimum is $40. Also say your card has a 13.99% monthly APR. It will take you 14 payments, or two years, to pay off this debt. You’ll also have to pay an additional $40.22 in interest, making your total $540.22.

Now, imagine your credit card balance is $5,000, with a minimum monthly payment of $105. It will take you 68 months, or six years, to pay off the full balance if you only make the $105/month minimum payment. You’ll have paid $2,069.02 in interest, bringing your total to $7,069.02.

If you have a higher APR, or a greater balance, you may end up paying thousands of dollars in interest and it could take years, even decades, to repay. You can use a credit card payoff calculator to help you figure out how long it will take you to pay off your debt, and how much interest it will cost you.

In these examples, you can see how quickly your debt will add up over the course of time. By paying the minimum balance, it’s quick and easy to accumulate credit card debt that can become very difficult to pay off, making reaching your financial and savings goals more difficult.

Even if you can’t pay off the full balance each month, you should try to pay off as much as you can. Paying more than the minimum payment, even if you continue to carry a balance, can save you hundreds or thousands of dollars in interest. The more you can pay toward your balance the faster you can pay it off, and the more you’ll save.

What happens if I only make the minimum payments?

By paying at the minimum on your credit card balance, you’re avoiding:

• Late fees
• Delinquency
• Penalty APR
• Damage to your credit score for making late payments

However, it’s not recommended to make paying only the minimum a common practice.

Debt will take longer to pay off

Minimum payments are typically very small, especially compared to what your credit limit could be. Typically, you’ll owe either a fixed amount, like $25 or $50, or a percentage of the balance, whichever is greater. You may only be required to pay 1% or 2% of the balance each month (plus fees and accrued interest).

While you’ll avoid the late fees and penalties by making these payments, you won’t really make any progress on paying down your balance. You may rack up thousands of dollars on your card, so paying just $25 or 1% of the balance won’t make much of a difference in the total amount.

You can look at the “Minimum Payment Warning” on your credit card bill to view a table that shows how much money and how many years you’ll need to pay off your balance if you only pay the minimum each month. Or, you can use a credit card calculator online.

You’ll pay more in interest

Unless you have a 0% APR credit card, which doesn’t charge interest for an introductory period of a certain number of months, the interest accrued will increase as your balance increases, especially if you keep using the card. The lower your balance, the lower amount of interest you accrue. And, if you pay off the card in full and don’t carry a balance, you actually don’t accrue interest at all.

Also keep in mind that the more interest you accrue, the more you’ll have to pay off, which can quickly lead to even more credit card debt.

Your credit score could suffer

While paying only the minimum doesn’t directly hurt your credit score, allowing your balance to grow without paying it down may increase your credit utilization rate, which is an important factor for your credit score, as well as affect your debt-to-income ratio (DTI).

Your credit utilization rate measures the total amount of debt you owe compared to how much credit you have. A high utilization rate can negatively affect your score. Experts recommend keeping your utilization rate low, but to avoid reaching 30% or higher.

Having a high DTI, or how much debt you have compared to your income, can also negatively affect your score and your ability to get loans, credit cards, and low interest rates in the future. Experts recommend having a DTI of 36% or less. This is because lenders may feel nervous that you have more debt than your income will allow you to pay back.

Learn more: Will Making the Minimum Payment Hurt Your Credit Score?

What happens if I don’t make the minimum payment on my credit card?

Paying less than the minimum on your credit card can have serious consequences:

1. Credit card issuers will treat any payment below the minimum payment as a missed payment.
2. The missed payment will be reported to the three major credit bureaus (Experian, Equifax, TransUnion).
3. The missed payment appears as a derogatory mark on your credit history, which can seriously impact your credit score.

This negative mark could remain on your credit report for up to seven years.

Additionally, your credit card issuer may start charging you a penalty APR, meaning the APR on your balance may increase and you’d owe even more over time.

What should I do if I can’t afford minimum payments?

Paying at least the minimum on your credit card is essential for avoiding late fees and damaging your credit score. However, even if you can’t make the minimum payment, avoid skipping a payment altogether. Continuing to make payments on your cards – even less than the minimum – can show the credit card issuer you haven’t given up on paying your debt and it can help you if you ever need to request credit card forbearance or negotiate a debt settlement.

You also shouldn’t plan on just making minimum payments forever. Consider debt consolidation, debt settlement, or even declaring bankruptcy if:

• Your debt totals more than half your annual income.
• You can’t pay off your debt within five years.
• Debt is a major source of stress in your life.

If you can’t afford minimum payments, contact your credit card company to learn if you have any options. You may also want to consider consulting a bankruptcy attorney.

When does it make sense to only pay the minimum?

In order to keep your account in good standing, you must pay at least that minimum payment. If you pay less than the minimum, your lender will likely consider it a non-payment and you could default on your card.

However, there may be some situations where you can only pay the minimum on your credit card and you’re unable to pay off the full balance. There are only a few situations when you should do this:

• If you paid off the full balance, you wouldn’t be able to pay other bills that month.
• If you have a 0% APR card and need some extra cash.

The key to this is remaining disciplined, and confident in your ability to bounce back and after a month or two, resume making the full payments. If you do this, you should also try to pay off the card completely as soon as possible to avoid the debt getting out of control.

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