What Paying Only the Minimum Really Costs

Paying only the minimum keeps your account in good standing, but it’s the slowest and most expensive way to pay off a credit card. With a $5,000 balance at 22%, minimum payments could take more than 16 years and cost over $7,600 in interest, more than the original balance. Paying a fixed $191 a month instead clears it in three years for about $1,870 in interest.

How the math works

Minimum payments are usually calculated as a small percentage of your balance plus that month’s interest, with a floor such as $25 or $35. The exact formula is in your card agreement. As the balance shrinks, so does the minimum, which is why payoff drags on for years.

Here’s that $5,000 example, assuming a 22% APR (close to the average the Federal Reserve reports for cards that charge interest), a minimum of interest plus 1% of the balance, and no new purchases:

Monthly payment	Time to pay off	Interest paid
Minimum only (starts near $142, then falls)	about 16 years	about $7,670
Fixed $150	about 4.3 years	about $2,800
Fixed $191	3 years	about $1,870

Your own numbers will differ, but the pattern doesn’t: a fixed payment, even one only a little above today’s minimum, saves thousands because it doesn’t shrink as the balance falls.

Your statement already does this math

Look for the Minimum Payment Warning box on your monthly statement. By law, it shows how long it will take to pay off your balance with minimum payments only, and the total you’d pay. Most statements also show the monthly payment that would clear the balance in three years, and how much you’d save.

Those figures assume you stop using the card and your rate stays the same. If you keep charging, or your rate is variable and goes up, payoff takes longer.

Pick a fixed payment

1. Start with the three-year payment from your statement. If it fits your budget, set it as autopay.
2. If it doesn’t fit, pick the highest fixed amount that does, and leave it there even as the minimum falls.
3. Raise it whenever you can: after a raise, when another debt is paid off, or when a subscription ends.

Make sure the account you pay from always has enough in it. An autopay that bounces can cost you a returned-payment fee and a late fee.

Stop the balance from growing

New purchases undo your progress. While you’re carrying a balance, you’ve also probably lost your grace period, so new charges start collecting interest the day you make them; How Credit Card Grace Periods Work explains why. Use a debit card for daily spending until the card is paid off.

If you have several cards, put the extra money toward the one with the highest rate and pay minimums on the rest. If one card holds balances at different rates, How Credit Card Payments Are Applied shows where your extra dollars go.

If even the minimum is a stretch

Call your card issuer before you miss a payment and ask about hardship programs, a lower rate, or a temporary payment change. What to Ask for When You Can’t Make a Card Payment has the questions to ask. A nonprofit credit counselor can also review your budget and may be able to set up a debt management plan with lower interest rates.

Sources

• FTC: Using Credit Cards and Disputing Charges
• Federal Reserve: G.19 Consumer Credit (credit card interest rates)
• CFPB: Understanding the three-year repayment amount on a credit card bill

This article is for educational purposes and is not financial advice.