Posted by Tim Thompson CPA PLLC

What Happens If I Make the Minimum Payment On My Credit Card?

What Happens If I Make the Minimum Payment On My Credit Card?

You may be tempted to pay the minimum amount due on your credit card statement, but it can be very costly.

When you receive your credit card bill, you can usually pay three amounts: the minimum amount due, the bank statement balance, and the current balance. The minimum payment is the minimum amount you pay each month to keep your account up to date. The extract balance is the total balance of your account for this billing cycle. The current balance is the total of the most recent invoice plus recent taxes.

Experts recommend paying the full return balance each month, but there are times when this isn't possible. In such cases, you must make at least the minimum payment so that your account is upgraded and is not subject to any penalty or late fees.

How to Calculate the Minimum Payment

Minimum payments are calculated differently from one bank to another, but a "plan" is usually set, usually $25 or $ 35, which is the smallest minimum payment to charge.

However, if the bank statement balance is below the minimum level, the minimum payment will be the total balance. For example, if the plan is $ 35, but the balance is $ 12.95, the minimum amount will be the balance on the bank account statement: $ 12.95.

What happens when only the minimum payment is made?

Although it is essential to make at least the minimum payment, it is not ideal for maintaining a balance from month to month because it will accumulate interest (unless you get an initial APR of 0%) and risk of getting into debt.

Per the 2009 Credit Card Law, card issuers are required by law to include a "minimum payment notice" on each bank statement. This is usually represented by a table that shows the total time to pay the balance and the total amount you will end up paying (including interest) if you pay only the minimum. Sometimes there will be an example that will show what happens if you pay more than the minimum and lower interest rate.

Here is an example, my minimum payment is $25, and the interest rate is 15.99% variable.

If I make the minimum payment of $ 25 each, it will take me about four years to pay my balance of $ 827.32. During this period, the interest of $ 285.68 will accrue. By increasing the minimum payment from just $4 to $ 29, I would save $ 57 and take the time to pay my balance for about three years.

Simply paying the minimum is expensive, so pay your balance every month to avoid high interest and debt taxes.

In addition to an example describing the results of the minimum payment, some cards, like the Apple card, are starting to include interactive payment tools that show how much interest you'll have to pay if you pay only the minimum.

What Are the Consequences of Not Making the Minimum Payment?

Paying off the debt will take much longer

Credit card issuers usually set minimum payment requirements at minimum levels. Generally, you owe a fixed amount, usually $ 25, or a percentage of the balance, whichever is greater. Some cards require that you pay only 1% or 2% of the balance each month, plus taxes and accrued interest. Making these small payments on time will help you avoid late fees, but you won't progress in paying the balance.

Here's how it affects you: See the "Minimum Payment Notification" on your credit card statement. You will reduce this period considerably by merely paying more. If you pay double the minimum amount, this repayment period will be halved.

You will have Higher Interest Charges to Pay

If you don't use a 0% APR card, your charges will increase with your balance. You are only making the minimum payment, and it is unlikely that you will be eliminating interest from last month. And if you continue to charge items on the card, it will continue to fall further behind.

Here's how it affects you: To estimate your interest, divide your card's annual fee by 12 and multiply it by your average balance. 

You can start the new month with less debt, paying more against the balance.

Your Credit Could Take a Hit

As the balance on your credit card increases, your credit utilization rate also increases the percentage of credit you use. And because the rate of credit usage is an essential factor in your credit score, high balances can seriously damage your credit. It is, therefore, challenging to qualify for affordable loans and credit cards in the best conditions. It can also affect your ability to find a job or rent an apartment, as employers and landlords often check applicants' credit.

It is best to use less than 30% of the credit limit on a particular card. If you can use less, it's even better.

Here's how it affects you: If your debt increases relative to your credit limit, focus on reducing your balances as much as possible. If you run out of funds at the end of the month, try to pay your credit card bill immediately after the day of payment. 


Although it is preferable to pay the full balance of the bank statement, in some cases, only the minimum payment can be made. In these circumstances, it may be beneficial to pay only the minimum, but not in the long term. Once you have the money available to cover your balance, try as much as you can to pay in full. If not, try to pay more than the minimum, even if you cannot pay the total balance.

If you're having trouble paying the full bill regularly, this may be a sign of a bigger problem. Check your cash flow and spending habits to see if you can save money. You can also change the invoice due date to a more convenient date for the time you receive payment.

Another alternative is to open a credit card that offers an initial APR of 0% on new purchases or a credit card to transfer the interest-free balance for up to 21 months.

Tim Thompson CPA PLLC
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