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Minimum Credit Card Payments: Breaking Down the Numbers

To avoid late fees and a possible increase in your credit card interest rate, make at least the minimum payment on your credit card bill each month. The minimum due will change from month to month, so it can be hard knowing ahead of time how much money you’ll have to come up with to pay that minimum amount.

Paying only the minimum, however, means it will take a while to pay off the credit card bill in full, resulting in interest payments on the balance. Paying the balance in full each month is the only way to avoid paying interest.

The minimum payment depends on the size of your balance and the rules of your credit card issuer, which are listed in your cardmember agreement. If you owe a small amount such as $25, you’ll usually have to pay it in full.

There are two basic ways to calculate the minimum payment when carrying a balance:

Flat Percentage
This is the percentage of your total statement balance, including finance charges and any fees. Most credit card issuers charge 5-7 percent of the balance as a minimum payment.

Percentage Plus Fees and Interest
This formula calculates 1 percent of your total balance, excluding finance charges and fees. Then the fees and interest accrued during the billing cycle are added to the minimum balance due. For example, a $2,500 balance at 15 percent interest would have a minimum payment of $56.25. One percent of the balance is $25 and the interest charged would be $31.25.

You can incur additional fees if you pay the previous month’s payment late, if you don’t pay the previous month at all or the past due amount, or you exceed your credit limit. If you carry a balance on your credit card, you’ll notice a small box on the first page of your statement that shows the payment required to pay off the debt in three years. It will also show how long it will take to pay off the debt by only making the minimum payment each month.

You can also find an online calculator to see how long it will take to pay off the debt and how much interest you’ll pay over time. You can plug in numbers to see how making more than the minimum payment can sharply lessen the amount of time needed to pay off the debt.