Minimum Payment
Lowest payment card companies accept—usually 1-3% of balance. Paying only the minimum traps you in debt for decades with massive interest.
What You Need to Know
Minimum payment is the smallest amount credit card companies will accept, typically 1-3% of your balance or $25-35, whichever is greater. It's designed to keep you in debt as long as possible.
The trap: $5,000 balance at 20% APR with $150 minimum payment (3% of balance) takes 17 years to pay off and costs $4,300 in interest—nearly doubling your debt.
Minimum payment math:
- Covers mostly interest, barely touches principal
- Balance shrinks slowly as minimum payment decreases
- Total interest often exceeds original purchase price
Example: $3,000 TV at 24% APR
- Minimum payments: 12 years, $3,400 interest, total cost $6,400
- Fixed $100/month: 3.5 years, $1,100 interest, total cost $4,100
Credit card companies profit when you pay minimum. Always pay more than minimum—ideally the full statement balance monthly. If you can't, pay 2-3x the minimum to make real progress.
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/ask-cfpb/how-do-credit-card-companies-calculate-the-minimum-payment-en-47/
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Related Terms in Debt & Credit
APR (Annual Percentage Rate)
The total yearly cost of borrowing money, including interest and fees, expressed as a percentage.
Amortization
The process of paying off a loan through regular payments that cover both principal and interest.
Annual Fee
Yearly charge for having a credit card—$0 to $550+. Premium cards charge fees but offer rewards that can exceed cost for high spenders.
BNPL (Buy Now, Pay Later)
A short-term financing option that lets you split purchases into installment payments (usually 4 payments over 6 weeks) with little or no interest—if you pay on time.
Balance Transfer
Moving credit card debt from one card to another, typically to take advantage of a lower interest rate or 0% promotional APR.
Balance Transfer Fee
One-time charge (3-5%) to transfer debt to 0% APR card. $5K balance = $150-250 fee. Must save more than fee to make transfer worthwhile.