What Happens If I Pay Only the Minimum on My Credit Card?
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At a Glance
There is over $756 billion in outstanding credit card debt in the U.S. Among credit card carriers, 75% have a balance greater than $0, and the average balance held is more than $5,000.
When it comes to paying off this balance, making a full payment may sometimes feel overwhelming. To help, credit card issuers typically set minimum payment requirements for their cards. This payment, either a fixed amount or a percentage of your total balance (whichever is greater), is the minimum you can pay on your card each billing cycle to keep the account’s status as “current” rather than “late.” Paying at least this minimum will help you avoid defaulting on the card.
There may be months where paying the minimum on your credit card is your only option, and occasionally, that may be ok. However, as a long-term strategy, it will likely do your budget and credit score more harm than good.
In this article, learn more about:
What is a minimum payment?
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.
Paying the minimum payment on a credit card
By paying at the minimum on your credit card balance, you’re avoiding:
- Late fees
- 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.
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.
Does paying the minimum hurt my credit score?
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?
Lower your monthly payments
Combine multiple high-interest credit card debts into a single payment with a lower interest rate.
What is the Credit CARD Act?
The Credit CARD Act of 2009 was designed to protect consumers from unfair practices by credit card companies. The act requires credit card lenders to be transparent with their card terms and conditions, as well as adding limits to charges and interest rates.
For example, companies can’t increase your interest rate unless your account is at least one year old, and they must give you at least 45 days notice before making an increase. Issuers also can’t charge interest on balances outside of the most recent billing period, and fees must be “reasonable and proportional.”
This law also requires that your credit card billing statement include:
- The amount of time it will take you to pay off your credit card if you only make the minimum payment.
- The monthly payment you should make to pay off your balance in three years.
Commonly asked questions
Is it better to pay the minimum on credit cards?
To keep your credit card account in good standing and avoid defaulting on your card, you must make at least the minimum payment each month. However, depending on how much your balance is and your card’s APR, only paying the minimum could allow your debt to increase significantly over time, and you may have to pay hundreds or even thousands of dollars in accrued interest.
Do I get charged if I pay the minimum credit card payment?
You won’t get charged any fees by paying the minimum credit card payment, but if you have APR on your card, your balance will continue to be charged interest. However, if you miss your minimum payment, you may be charged a fee from your lender.
Do I pay interest if I pay the minimum credit card payment?
Unless your card has 0% APR, you will have to pay interest on your balance even if you pay the minimum payment.
Should you pay the minimum payment on credit card, or full balance?
You must make at least the minimum payment, but if you can pay more, you should. If you can’t pay off the full balance, pay as much as you can to avoid having to pay more in interest. Best practice is to pay off your card in full each month. To do this, be sure you’re not spending more than you can pay off.
Related: How to pay off credit card debt fast