10 Things to Know About Credit Card Minimum Payments

Understanding what a credit card minimum payment is and how it works is a more important concept than you might think. Paying just the minimum is the only requirement you have to keep your account in good standing, but doing so could keep you in debt for longer.

Learn more about how minimum credit card payments are determined, how they are applied and the advantages and consequences of paying just the minimum versus a larger payment.

1. What Is a Minimum Payment?

A credit card minimum payment is the least amount you need to pay each month to keep your account in good standing. Your minimum payment due amount is found on your credit card statement.

Having the option to make a minimum payment is one of the key benefits of using a credit card as it provides you with more time to fully pay off a purchase. The downside is that you will pay interest when you revolve a balance, so if you only pay the minimum, it will take longer to pay the principal balance and cost you more money in the long run.¹

2. How Are Minimum Credit Card Payments Determined?

You may notice that your minimum credit card payment amount changes from month to month. That’s because it's calculated based on the total amount that you owe. Credit issuers may use different formulas to determine the minimum payment, often adding in interest charges and other fees; but in general, the higher your total balance, the higher the minimum payment due will be.²

Depending on your balance amount, your credit card company might simply charge you a flat fee rather than using their minimum payment formula. This will typically be around $25 to $35. If you owe less than that, then you will be asked to pay your full balance.²

3. How Are Minimum Card Payments Applied to the Balance?

When you make a minimum payment, it’s up to the card issuer to decide how that will be applied.³ In most cases, the minimum will first go to any interest and fees that you owe.³ From there, the payment will be applied toward the balance that has the lowest annual percentage rate (APR).³

On the contrary, anything paid above the minimum payment must go toward the balance with the highest interest rate, which benefits you.³

4. You Can Pay the Minimum Payment More Than Once Per Billing Statement

You can make as many payments as you’d like during your billing cycle. In fact, the more you pay, the better. As stated, anything paid above your minimum payment will go straight toward your principal balance. This can help you make faster progress with your debt payoff and cost you less in interest over time.⁴

Lowering your balance can also help improve your credit score. Since your score is heavily impacted by your credit utilization (the amount you owe as compared to your total credit limit), lowering your balances is best practice.⁵

For example, if you owe $2,500 on a card with a $5,000 credit limit, you are utilizing 50% of your credit. If you can pay the balance down to $1,000, then your utilization is 20%. The credit scoring models look most favorably on utilizations that are below 30%, and as close to zero as possible.⁵

5. What Happens When You Don’t Pay the Minimum Card Payment on Time?

Making at least the minimum payment each month is your obligation as a cardholder. If you miss your due date even by one day, you could incur a late fee. Some card issuers charge a late fee for your first offense and might charge a higher fee if you’re late after that. In other cases, you might also be hit with a penalty interest rate if you miss one or more payments. That rate can last for a few months or, in some cases, indefinitely.⁶

If you realize right away that you’re late and immediately contact your card issuer, you may be able to have them waive the late fee or penalty rate as a one-time courtesy.⁶

If you miss a full billing cycle — meaning you are more than 30 days late — it will be reported to the credit bureaus and appear on your credit reports and, ultimately, negatively impact your credit score. If you reach 60 or 90 days without a payment, it will cause even more damage to your score.⁷

The best way to avoid late payments is to set up automatic payments on your credit card accounts.⁸ But ideally, you should also go in manually to make an additional payment when possible.

6. Do You Pay Interest When You Pay the Minimum Card Payment?

Credit cards have a grace period that allows you to avoid paying interest if you pay your entire statement balance in full. If you only make minimum payments, then an interest charge will be applied on your next billing statement and going forward for as long as you’re carrying a balance.⁹

Interest is usually calculated using your average daily balance and accrues each day. That’s why the more you pay above your minimum payment and the sooner you make that payment, the less interest you will pay next month.¹⁰

7. How Making the Minimum Payment Affects Your Credit Score

Making just the minimum payment will impact your credit score in a couple of ways. On the positive side, making consistent, on-time payments — regardless of the amount — is the number one factor in credit score calculations.¹⁰

But the second factor has to do more with how you are using your credit lines and how much you owe — your credit utilization, which we mentioned earlier. If you are only making minimum payments, that means that your principal balance and your utilization will decrease at a much slower rate. High utilization could make it harder to see score improvements.¹¹

8. How Long Will It Take to Pay Off a Credit Card if You Only Make the Minimum Payment?

The length of time it takes to pay off a credit card with just a minimum monthly payment will vary depending on how much you owe and your interest rate. However, as per the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), credit card companies are required to include a “minimum payment warning” on every credit card statement. It’s a chart that outlines how long it will take you to pay your full balance — and how much in interest it will cost — if you make only minimum payments.²

As an example, if you owed $2,000 with a 19.99% APR and a minimum payment amount of $80, it would take you 103 months and cost a total of $3,273.80. 

9. Can You Pay More Than the Minimum Card Payment?

You can certainly pay more than the minimum amount due — and whenever possible, you should. The more money you can put toward your principal balance, the faster you will reduce your debt, the less interest you will pay and the better your credit health will be.⁴

If you’re aiming to lower your minimum card payment amount, you have two main options:⁴

1. Make larger payments. Because your minimum amount due is based on your balance, if you lower that balance, next month’s minimum payment will be lower.

2. Reduce card spending. Sticking to your budget and not overextending yourself can help ensure that you will be able to make a full balance payment.

10. Do You Have to Make Minimum Payments With Deferred Interest Financing?

Deferred interest financing requires you make a minimum payment each month. However, if you only make the minimum payment, you will typically not be able to pay off the full purchase amount before the promotional period ends.

This is important to note since deferred interest offers work a bit differently than regular credit cards in terms of how interest is applied. With deferred interest, you have a set period of time to pay off your purchase with no interest. If you do not finish paying off the entire balance by the end date, all of the interest that has accrued on the full amount from the original purchase date will be added to your remaining balance.¹²

Therefore, a wise strategy is to make more than the minimum payment whenever possible and create a payoff plan for yourself that allows you to pay off the full balance before the promotional period expires.

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Author Bio

Dawn Papandrea is a journalist with more than two decades of experience covering personal finance and consumer issues. She has written for leading financial publications and organizations, including U.S. News & World Report, Investopedia, Bankrate and others.