What It Means
The minimum payment is the lowest amount your credit card issuer requires you to pay each month to avoid late fees and negative credit reporting. It is typically calculated as the greater of a flat dollar amount (usually $25-35) or a percentage of your balance (usually 1-3%). While making the minimum payment keeps your account current, it is an extremely expensive way to manage credit card debt. At 22% APR, paying only the minimum on a $5,000 balance could take over 20 years to pay off and cost more than $8,000 in interest. Financial experts strongly recommend paying your full statement balance each month, or at minimum, significantly more than the minimum payment.
Frequently Asked Questions
What happens if you only pay the minimum on a credit card?
You will avoid late fees, but interest will accrue on the remaining balance. A $5,000 balance at 22% APR could take 20+ years to pay off and cost over $8,000 in interest if you only pay minimums.
Does paying the minimum payment affect your credit score?
Paying at least the minimum keeps your account current and prevents negative marks. However, the remaining balance contributes to high utilization, which can lower your score.