The True Cost of Minimum Credit Card Payments

The True Cost of Minimum Credit Card Payments

The True Cost of Minimum Credit Card Payments

If you carry a credit card balance, you know that the statement lists a minimum payment. There is also a number that represents how long it will take you to pay off the card (providing you never use it again) just making minimum payments. Exactly what are the minimum payments and how much will using that option cost you?

What is the Minimum Payment?

The minimum payment is usually a percentage of your credit card balance plus any penalties you’ve earned. Each card calculates the minimum payment amount differently, but the percentage is roughly anywhere from 1 to 3%.

Most of the minimum payment goes to penalties and interest with whatever is leftover applied to the balance. If you miss a payment, that penalty is added to the minimum payment and must be paid off before any money can go to the balances. As you can see, paying just the minimum payment means that it will take forever to pay off your credit card and you will be hit with huge interest charges.

Sure the minimum payment will keep your account in good standing, but you won’t make any headway in becoming debt-free.

How Much of a Difference Does Paying More Make?

What is the true cost of paying the minimum payment? Let’s look at a couple of different minimum payment scenarios below.

Minimum Payment Scenario #1)

Credit card balance: $5,000
APR: 21.21%
Minimum payment: $100
Time to pay off: 10 years
Finance charges: $7,282.74
Total paid: $12,282.74

That is a lot of money that you could use for something far more important than finance charges.

Now, let’s look at a slightly more than minimum payment of $125.

Minimum Payment Scenario #2)

Credit card balance: $5,000
APR: 21.21%
Minimum payment: $125
Time to pay off: 6 years
Finance charges: $3,758.13
Total paid: $8,758.13

That $25 a month makes a huge difference!

Of course, both these examples assume you are not using your credit card and don’t make a late payment.

If you’d like to see what happens with your balance and payments, check out this credit card payment calculator from Pacific Debt, Inc. 

How Can I Pay Off My Credit Card Faster?

One of the fastest ways to pay off a card is to make a minimum payment and then several more small payments during the month. The first pays off your finance charges and the subsequent payments pay down the balance. If you are stretching your paycheck six ways to Sunday, it may be easier to make smaller payments from each paycheck than one lump sum.

The Avalanche

If you have several credit cards with balances, there are several options to the avalanche payoff. The first is to list all your cards and the balances and APRs. Either choose the smallest balance or the highest APR and focus on paying that one off while making minimum payments on the others. Once you have card one paid off, put all that payment plus the minimum payment on card two while making a minimum payment on the next card.

The benefit of paying off the highest APR is that you eliminate finance charges faster. The benefit of paying off the lowest balance card first is the feeling of accomplishment.

The Balance Transfer

Another way is to look for a balance transfer card with a 0% APR. Transfer as much of your credit card debt onto that card and pay off as much as you can each month. Just read the fine print because the APR on balance transfers can be quite high after the introductory period ends.

The Personal Loan

Another option is to find a personal loan and pay off your credit cards. You can then pay off the personal loan. To get the best interest, you need to have a good credit score, so this may not be in your favor. Check at credit unions for better rates on a loan.

Other Options

If there is no money to make more than minimum payments, you may need to look at your finances more closely. One of the first options is to find another job. The problem is that many people either can not find jobs thanks to the pandemic or are already working two or more jobs. So instead of recommending that, let’s see what else you may be able to do.


No matter what your financial situation is, you need to make a budget and stick to it. We have written several previous articles about budgeting apps and types of budgets that might fit your needs and personality. 

The biggest secret to budget is to know where you spend your money, what you can cut out, and sticking to it. You may also need a financial reset such as the one we detail 30 Days without Spending Money.

Credit Counseling

If budgeting leaves you cold, you may want to speak with a credit counselor. Choose a reputable non-profit company. Credit counselors will help you to set up a budget and stick with it. You’ll get extra training and information about finances that can help you become debt-free.

Debt Settlement

If you have more than $10,000 in credit card debt and can’t make even the minimum payment, you may be a candidate for debt settlement. Debt settlement is negotiating with your creditors to lower the amount that you owe while you build up a savings account to pay the decreased debt.

Pacific Debt, Inc

We are a reputable and award-winning debt settlement company. If you’d like more information, we are happy to help. We will explain all your options and help you decide which is the best option for you. We can even refer you to trusted partners who can better assist you.

If you have more questions, contact one of our debt specialists today. We offer a free consultation and our debt experts will explain your options to you.


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