What is the Minimum Payment on a Credit Card?

The minimum payment is the lowest amount you can pay in order to remain current and in good standing on a given credit card account. It’s the minimum amount you can pay in order to satisfy your credit card bill each month, and paying only the minimum payment is typically ill-advised and something all consumers should look to avoid. Doing so will lead to the largest amount of interest paid and will make your road to debt freedom a very long one.

How are Minimum Payments Calculated?

Minimum payments are typically calculated via a percentage based on the balance. Although minimums sometimes have a minimum payment of $25 so if a given balance is particularly low, it might not apply in that scenario. The percentages can vary but minimum payments are usually around 1-4% of the total balance. Balances fluctuate at different times and likewise so do minimum payments. Minimums can go up and down each month depending on your balance and how much of your balance you paid off in the month prior. So, if a given credit card balance is $500 you might expect a minimum payment of $25. If another given credit card balance is $2,000 and it has a 2.5% minimum payment you would expect a minimum payment of $50. Minimums can also vary based on interest rates.

Why Were Minimums Created?

There’s no way around it or a nice way to say this. Minimum payments were created to keep you in debt and keep you paying the highest possible interest rate for what you borrowed on your credit cards. In that they are quite successful since many consumers rely on credit cards and unfortunately get caught in a vicious debt cycle when extenuating circumstances occur in their life. The small monthly debt obligation comes with a price tag and that price tag is high amounts of interest paid.