3 things to know about credit card minimum payments

The Nugget

Understanding credit card minimum payments can save you from late fees and excessive interest. Knowing how they are calculated and the long-term cost of only making minimum payments is crucial for effective debt management.

Make it stick

💸 The minimum payment is the smallest amount you must pay monthly to avoid late fees.
📊 It's calculated as a percentage of your balance or the interest owed plus 1% of the principal.
📉 Paying only the minimum increases your total interest paid over time due to compounding.
🔍 Fixed dollar amounts can set a floor for minimum payments, ensuring they never fall below this level.

The minimum payment is the least amount due each month, applicable to avoid late fees. It's a crucial aspect of credit card management as failing to pay it can lead to penalties.

Percentage of Total Balance: Usually a set percentage of your current balance.
Interest + Principal: The calculation often includes all the interest you owe for the month plus 1% of the principal.
Minimum Floor: Credit issuers set a fixed dollar amount to ensure minimum payments do not drop too low.

Paying just the minimum can lead to extensive debt over time due to continuous accrual of compounding interest.
While it keeps you current and avoids late fees, always paying the minimum prolongs debt and increases total payments.

"The minimum payment is the smallest amount you can pay each month on your debt without incurring a late fee."
"Minimum payments are usually either a percentage of your total current balance or all of the interest you owe plus one percent of the principal."
"Paying only the minimum will cost you over time."
"The longer you take to pay off your debt, the more interest you pay."
"The more you know about minimum payments, the better you'll be at tackling that debt."

This summary contains AI-generated information and may have important inaccuracies or omissions.