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Are You Stuck in a Credit Card Minimum Payment Trap?

If you have a credit card, then you have a minimum payment. Not sure what it is or what it means for your finances? This guide will explain how your credit card minimum payment works.

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What is a credit card minimum payment?

The Minimum Payment Trap: Why minimum payments get you nowhere fast

Your credit card statement is filled with a variety of numbers and can look very confusing, whether you’re new to credit or you’ve had credit cards for years. One of the most important numbers on your statement is your minimum payment. It’s the absolute minimum the company requires you to pay on your card every month. Your balance will likely be higher than this minimum payment each month, but as long as you pay that amount, the credit card company will consider your account current.

How is my credit card minimum payment calculated?

The minimum balance you owe depends on the company through which you get your credit card. Some companies use a flat rate, while others use a percentage of a principal balance or a combination of the two as their credit card minimum payments calculation. The minimum amount that you usually pay will be $15 or $25, depending on the credit card company. But as your balances increase, your minimum payment will generally increase as well.

Another calculation that involves your minimum payment is your credit utilization ratio, which has a big impact on credit scores. Your utilization ratio is calculated by dividing your total minimum monthly payments by your total available credit limit. Anything above 30% will harm your credit score.

What if I miss my minimum payment?

If you miss your minimum payment due date, your account will be immediately penalized. Different companies require different late fees, so check your terms to find out how much you will owe.

If 30 days pass and you still haven’t made your minimum payment, your credit card company will report it to the credit bureaus. This missed payment will stay on your credit report for a long time  ̶ seven whole years, to be exact. If you keep missing minimum payments, your late fees will pile up and make it even more difficult to pay off your credit card and get out of debt.

How can I avoid missing my credit card minimum payment?

There are many ways to ensure that you never miss a minimum payment. Some credit card issuers allow you to set up text or email reminders. Often, you can set up automatic payments, so you never have to worry about manually paying a minimum requirement.

Can I pay more than my minimum payment?

Paying the minimum payment means you avoid penalties and fees, but your annual percentage rate (APR) will still apply as interest to the balance that is left after you pay the minimum required payment. This is why it’s always best to pay your full credit card balances every month instead of just the minimum payment.

Why is my minimum payment not helping my debt?

Minimum payments are not set up to help you get out of credit card debt. In fact, only the minimum payment is often what gets people into credit card debt in the first place. Though it is the only payment that is technically required by you, the rest of what you owe will continue to grow and gain interest charges if you don’t pay your balance in full.

Want to find out how long it would take you to pay off your debt with just the minimum payment? Use the calculator below to see why you should start paying more than the minimum.

I’m having trouble with my credit card minimum payment. What do I do?

Making your payments can be tough, even when you’re using a debt reduction plan. If making your minimum payments is getting difficult or your paying your credit card debt is too difficult to manage on your own, get a free evaluation from a credit counselor at Consolidated Credit today. We can help you find alternative ways to get out of credit card debt.

Need help with your credit card debt? Get a free evaluation from a certified credit counselor today.