If you’re holding substantial credit card debt, sometimes the best you can do each month is make the required minimum payment -- the smallest amount that your credit card issuer will accept toward your debt each month. It’s critical to pay at least that much to avoid fees, penalty APRs and damage to your credit score.
Most of us wait until we get our credit card statement at the end of a billing cycle to see what we’ll owe. But if you’re on top of your budget and want to put aside money to cover your minimum payment, there’s an easy way to estimate it beforehand. You can also review your credit card agreement to learn how to calculate your next minimum payment.
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Learn all about credit card minimum payments, including how credit card issuers determine them, what happens if you can’t make them, and why paying more than the required minimum will help get you out of debt faster.
How are credit card minimum payments calculated?
As a general rule, credit card issuers determine your minimum payment based on your outstanding balance, but the exact formula can differ. Usually, the minimum payment is calculated as a small percentage of your credit card balance, often 1% to 4%, or a predetermined fixed amount, whichever is higher.
- A large balance: If you have over $1,000 on your card, your minimum payment will typically be a percentage of your balance plus fees.
- A medium balance: If you don’t meet the minimum threshold based on your balance, you’ll owe a flat minimum payment, typically $25 or $35, plus fees. For example, if you have a balance of $500, at a 2% rate your $10 minimum payment wouldn’t meet the threshold. You’d owe the flat payment instead.
- A low balance: Your minimum payment will likely be the full balance plus fees if it’s under $25 to $35.
All that being said, credit card companies have different rules for how a minimum payment is calculated:
Flat percentage
If an issuer is using a flat percentage, add your current credit card balance, fees and past-due amounts, then apply the percentage. For example, suppose you have a balance of $5,000, $120 past due and $80 in late fees. If you owe 2% on the total amount of $5,200, your minimum payment is $104.
Percentage plus fees
This method is a bit more complicated to calculate but is commonly used by credit card issuers. Apply the percentage to your current credit card balance and then add your fees and past-due amounts. First, you’ll owe 2% on the balance of $5,000, then you’ll add $120 past due and $80 in late fees. That would make your minimum payment $300.
Flat fee
For smaller balances of less than $1,000, your credit card issuer may charge a flat minimum monthly payment of $25 or $30, plus any fees and past-due amounts. And if your balance is even smaller than the flat $25 or $30, you’ll be asked to pay the whole amount, plus any fees and past-due amounts, as your minimum.
Read more: How to Make More Than Your Credit Card Minimum Payment
You can find your credit card issuer’s rules for determining minimum payments in your cardholder agreement. You should have received a print version of the agreement when you opened your account, and it should also be available on the issuer’s website.
How can I find my credit card minimum payment?
Your minimum payment should be clearly visible on your monthly credit card statement, whether you receive it via mail or online. Your statement should also show you a “minimum payment warning” that includes:
- How long it will take to pay off your current balance making only minimum payments
- How much it will cost in interest to pay off your balance making minimum payments
- How much you’d have to pay each month to erase your debt in 36 months
- How much interest would accrue if you paid off your balance in 36 months
This minimum payment warning can tell you how quickly you could pay off your credit card debt and how much interest it would cost to do so.
Do credit card minimum payments change from month to month?
Since a minimum payment depends on the current balance and fees, as well as on your monthly spending and other transactions, your required minimum payment will typically change with each credit card statement.
What if I can’t afford my minimum credit card payment?
If you can’t make your minimum payment, contact your credit card issuer ASAP. The issuer may be willing to create a payment plan that’s more affordable or offer a hardship program, which can be less damaging to your credit score than going into arrears or having an account charge-off.
Read more: What to Do if You Can’t Pay Your Credit Card Bill
Why you should try to make more than the required minimum payment
Making only the minimum payment of your total credit card bill has two major consequences: It will significantly increase the time it takes to pay off your balance, and your total debt will also increase from interest accrued on that balance.
A LendingTree study earlier this year found that making only the minimum monthly payment on credit card balances leads to long payoff times and high levels of interest. For example, balances of $2,000 and $5,000 will take more than a decade to pay off and will accrue more interest than the original amount borrowed if only minimum payments are made.
If you have a good credit score, you might try transferring your balance to a 0% APR credit card to avoid having to pay interest for a set amount of time. By eliminating finance charges during the card’s introductory period, your monthly payments will go directly toward the card’s principal. The LendingTree study found that using a credit card with a 15-month 0% APR period cut down the payoff times for balances of $2,000 or $5,000 by almost two years.
For more on credit cards, check out the biggest credit card mistakes to avoid and why using a debit card might help you spend less.
Does making only the minimum payment affect your credit?
Credit scoring models reward you for using credit responsibly, but there are a number of different factors that contribute to your score. Making only the minimum payment on your credit card can help your score in some ways but hurt it in others.
Your payment history accounts for 35% of your credit score, so making minimum payments on time is important. If you consistently pay on or before the due date, your credit card issuer reports them as on-time payments, which improves your credit score.
Credit utilization, or the amount of credit you use, is another important component of your credit score. Experts recommend keeping your credit utilization at or below 30% to improve your score. If you’re not adding any new charges to your credit card, then making the minimum payment every month will reduce how much you owe, which can help raise your credit score. However, if you continue to use your credit card to make new purchases, your balance and credit utilization will increase, which can hurt your credit score.
FAQs
You need to pay at least the minimum payment of your total statement balance to keep your account in good standing and avoid fees and penalty APRs. If you have missed payments or late payments, your account could be labeled “delinquent” or eventually be “charged off,” both of which will severely damage your credit score. Just remember that paying only the minimum means you’ll accrue interest charges on your balance.
Credit card issuers calculate the minimum payment for your credit card based on a percentage of your current balance and any fees or past-due amounts. You can find the exact way your credit card issuer determines your minimum payments in your cardholder agreement.
If you’re able to make more than the minimum payment on your credit card every month, you’ll pay off your debt faster and save money on interest.
Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.
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