Making Minimum Credit Card Payments:
Good Idea, Or Bad?

Updated: Jul. 7, 2019 

mike-pearson

Making the minimum payment on your credit card might save you a little bit of money in the short term.

But over time, minimum payments will cost you more in interest and increase your debt. 

Not only that, but they can also hurt your credit score. 

How paying only the credit card minimum payment costs you more

Generally, making only the minimum payment on your credit card is a bad long-term strategy.

There are a couple different reasons why it's a lose-lose scenario for your finances.

Let's take a look.  

Problem #1: It takes longer to pay off your debt

First, sticking with minimum payments means it will take you a lot longer to pay off your credit card balance—especially if your card has a high interest rate.

For example, let's say your credit card balance is $10,000, with a 17% interest rate.

A 4% minimum payment is $400 per month, and if you pay the minimum payment every month, it will take you 13 years to pay off your debt. 

Not only will you end up paying on your credit card for over a decade, you'll also pay $5,369 in interest—that's more than half your original debt, just in interest payments. 

Not only that, but if you continue to use your card during this time, you'll accumulate even more debt, resulting in a snowball effect that can make it difficult to dig your way out.  

Problem #2: Minimum payments can hurt your credit score

While making on-time payments each month can help you establish a positive payment history (a good thing), minimum payments don't do much to shrink your debt. 

In fact, carrying a very high balance can cancel out the benefits you gain from paying your bill on time. 

Depending on how much you owe, sticking with the minimum payment can raise your credit utilization rate—the ratio of how much credit you use compared to your total available credit. 

For example, if your credit card has a $5,000 limit and you owe $4,500, your credit utilization rate is 90%. Making only the minimum payment on this balance will keep your credit utilization high, which hurts your credit score. 

Ideally, you want to keep your credit utilization below 30%.

On a card with a $5,000 limit, this means making sure your balance never exceeds $1,500. 

How much should you pay?

So if minimum payments are out, how much should you pay?

To boost your credit score and stay out of debt, you should aim to pay your balance in full every month—this allows you to maintain a positive payment history and keep your credit utilization at zero. 

Of course, life can throw financial curveballs. Emergencies can pop up, or you might decide to charge a larger than normal purchase.

While you might need to make a minimum payment for a month or two, you should resume paying as much as you can as soon as possible—with the goal of paying off your balance entirely as quickly as you can.  

How are minimum payments calculated?

Minimum payments vary depending on the credit card company, as well as how much you owe.

For example, if your balance is low, your minimum payment might very well be your balance. If you have a higher balance, your credit card company will calculate your minimum payment based on your balance plus your annual interest rate. 

This is why it's important to read the fine print before you open a credit card—look for information about how your lender calculates minimum payments.

You can get this information by calling your card's customer service department, or by logging into your account online.  

You can also get information about your minimum payment by looking at your monthly billing statement.

Federal law requires credit card companies to include a warning informing cardholders how long it will take them to pay off their account by making minimum payments.

Minimum payment requirements differ by credit card companies

You'll want to check your cardholder agreement to get firm details on how your lender calculates minimum payments, but here's a general overview of minimum payment requirements for several prominent credit card companies. 

Credit Card Company

Minimum Payment Requirements

American Express 

The greater of $35 or interest on the statement plus 1% of the full balance, plus any penalty fees and past due amounts.

Bank of America

Past due amount plus $25 or 1% of new balance, whichever is greater. Add interest charges or late fees if applicable.

Chase

Past due amount plus $25 or 1%, whichever is greater. Add any fees or interest.

Citi

Past due amount plus $30 or 2% of new balance, whichever is greater. Add any fees or interest. 

Discover 

The greater of: $35, 2% of the full balance, or $20 plus new interest and late fees. 

US Bank 

Past due amount plus $30 or 1%, whichever is greater. Add any applicable fees or interest. 

Wells Fargo

Past due amount plus $15 or 1%, whichever is greater. Add any fees or interest.  

What are your minimum payment rights?

By law, credit card companies are required to give you certain information about their minimum payment requirements and how they affect you.

Per the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, credit card lenders have to provide you with regular updates and warnings about making minimum payments.

You'll find these updates and warnings on your monthly statement.

The CARD Act requires every credit card statement to include the following: 

  • A "minimum payment warning," which tells you how much time it will take you to pay your balance if you make the minimum payment, as well as how much you need to pay each month to pay off your balance within three years.
  • A number you can call to get information about credit counseling.

The law also requires your credit card lender to apply any extra money you pay over your minimum payment to your balance with the highest annual percentage rate (APR).

For example, if you have one card with a regular purchase balance at 18% APR and a balance transfer at 10% APR, any surplus you submit beyond the minimum payment must go toward the balance with the 18% APR. 

Final thoughts

Although making minimum payments can put more money in your pocket in the short term, paying the minimum will hurt you in the long run.

Bottom line: minimum payments rack up interest, keeping your credit card balance high.

Over time, this can hurt your credit score by raising your credit utilization rate.

To boost your score and keep your finances in top shape, aim to pay off your credit card balance every month. 

About the Author


mike-pearson

Mike Pearson

Mike is a recognized credit expert and founder of Credit Takeoff. His credit advice has been featured in Investopedia, CreditCards.com, Bankrate, Huffpost, The Simple Dollar, Reader's Digest, LendingTree, and Quickbooks. Read more.

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