If you pay attention to your credit card billing statement each month, you've probably noticed that your minimum payment—the amount you must pay to avoid being penalized—can change from one month to the next. That’s because it’s typically calculated as a percentage of your outstanding balance plus any fees. So the higher your balance, the higher your minimum payment will be.
While it’s always best to pay more than the minimum required, you should understand how the minimum is calculated and what happens if you don’t pay it. Credit card issuers use different methods, but there are some general principles that apply. Here’s what you need to know:
Note
Aim to pay your monthly balance in full to avoid interest charges. If you can’t, paying more than your minimum will help you mitigate the effect of compound interest.
Methods of Calculating
Method 1: Percent of the Balance + Finance Charge
Some issuers calculate the minimum payment as a percentage of the balance at the end of the billing cycle, plus a monthly finance charge. So, for example, 1% of your balance plus the interest that has accrued. Let’s say your balance is $1,000 and your annual percentage rate (APR) is 24%. Your minimum payment would be 1%—$10—plus your monthly finance charge—$20—for a total minimum payment of $30.
Method 2: Percent of the Balance
Some credit card issuers calculate the minimum payment as a straight percentage of the balance at the end of your billing cycle. This percentage is likely to be higher than in the above scenario, maybe between 2% and 5%, and it will be applied toward both your principal and interest charges. So again, if you had a $1,000 balance and your minimum payment was calculated at 2% of that balance, it would be $20.
Other Variations
Some issuers use both of these methods, determining the amount based on the higher of the two. And in many cases, any of these methods can be combined with a floor amount. If the calculation the issuer uses yields an amount less than say, $25 or $35, the floor kicks in instead.
Note
Penalty fees like late fees, as well as past due amounts, will typically be added into the calculation. This would increase your minimum payment significantly.
One other caveat: If you’ve exceeded your credit limit, your issuer may add that to your minimum payment. For example, if your balance is $1,050 and your credit limit is $1,000, your minimum payment may be 2% of the balance—$21—plus the $50 from being over the limit, for a total of $71.
How to Find Out How Yours Is Calculated
You can find out which method your credit card issuer uses by reading your credit card agreement. Look for a section titled "How your minimum payment is calculated" or "Making payments." A customer service representative can also help you.
When Your Minimum Payment May Be Your Full Balance
There are some instances when your issuer may require you to pay your balance in full:
- If your account is charged off, you'll no longer have the luxury of making monthly payments and your credit card issuer will demand the full balance.
- If you have a charge card, your minimum payment is the full balance on the credit card. By nature, charge cards don't allow you to carry a credit card balance from month to month, so you're not allowed to pay just a portion of the balance each month.
- If your balance is below a certain amount, like $25, your minimum payment may be the full balance.
Reasons Your Minimum Payment May Increase
Besides an increase in your balance, there are a few other reasons your minimum payment could increase from one month to the next:
- You were late on a previous payment.
- You're over your credit limit.
- Your interest rate, or APR, has increased.
- The credit card issuer changed the percentage used in the calculation, either as a company principle or because you pose a bigger credit risk.
Making Your Minimum Payment
The minimum payment must be paid by the cutoff time on the payment due date. For most credit cards, the cutoff time for your minimum payment is 5 p.m. Some credit card issuers extend the cutoff time to later in the day. Check with your credit card issuer to find the exact time. Make sure you give yourself enough time to get it in on time.
Your credit card issuer will give you a few options for making your minimum payment by mail, online, or other the phone.
- If you mail your payment, you can send a check or money order.
- If you make a payment online or over the phone, you'll be able to supply your checking account and routing number to make an electronic payment.
Note
You can't use another credit card to make your minimum payment.
What Happens If You Miss Your Minimum Payment
If you miss your monthly minimum payment or you pay less than the minimum, your credit card issuer can charge you a late fee. Missing the minimum payment can also mean you forfeit any promotional interest rate you have on your balance. After you miss two minimum payments in a row, your credit card issuer may raise your interest rate to the penalty rate.
After your minimum payment is more than 30 days late, the credit card issuer will report the late payment to the credit bureaus. This late payment will go on your credit report and remain for seven years. Your credit score might also be impacted, especially in the first few months after the late payment is added.
Previously missed payments will raise the current minimum payment due. Not only will you be required to make the current and missed minimum payments, but a late fee will also be added to the amount you need to pay to get your account back in good standing. Because the minimum payment rises with each missed payment, it gets harder and harder to catch up on your payments.
Paying More Than the Minimum
You can and should pay more than the minimum, if at all possible. Paying only the minimum is the most expensive way to pay off your credit card balance. It takes the longest amount of time, and you'll pay more interest by the time you completely repay your balance. In fact, if you're making the minimum payment yet continuing to make purchases each month, your balance will grow instead of shrink. This is one of the fastest ways to get yourself into debt.
Frequently Asked Questions (FAQs)
What happens if you only make the minimum payment on your credit card statement?
If you only make your minimum payment, and it leaves a balance on your card after the end of the billing cycle, then that balance will be subject to interest. The average credit card interest rate is about 20%, and that means any debt left after your minimum payment will grow by 20%. Some cards may restrict your grace period when you don't pay your statement balance in full, so any new charges could immediately start accruing interest.
How do you lower your minimum payment?
While you may have some flexibility to negotiate a lower interest rate, you probably won't have much wiggle room when it comes to making minimum payments. The best way to reduce minimum payments is to pay off debt and keep your credit utilization low.
FAQs
How Credit Card Minimum Payments Are Calculated? ›
Credit card minimum payments are usually calculated based on the monthly statement balance. The minimum payment could be a percentage of the balance, plus new interest charges and late fees. Or it could be a flat percentage of the entire balance. And in some cases, the minimum payment could include past-due amounts.
What is the minimum payment on a $2000 credit card balance? ›| Issuer | Standard Minimum Payment |
|---|---|
| American Express | $35 |
| Bank of America | $35 |
| Barclays | $25-29 |
| Capital One | $25 |
Editorial and user-generated content is not provided, reviewed or endorsed by any company. The minimum payment on a 0% APR credit card is usually either a fixed amount or 1% of your statement balance, whichever is greater. Just note that minimum payment is calculated differently by each issuer.
How does Capital One calculate minimum payment? ›The Capital One minimum payment for most credit cards is either $25 or 1% of your statement balance plus any interest and late fees, whichever is greater. If your balance is less than $25, the entire amount is your minimum payment.
What percentage is the minimum payment on a credit card? ›Your credit card minimum payment will usually be a flat percentage -- often 1% to 4% -- of your current balance. For example, if you have a balance of $5,000, you might owe a minimum monthly payment of 3%, or $150.
What is the formula for the minimum payment? ›Percentage + interest + fees
Suppose your balance (before interest and fees) is $10,000 and you've accrued $160 in interest and $38 in late fees. If your issuer calculates your minimum as 1% of the balance plus interest and fees, you'd have a minimum payment of $298.
The minimum payment on a $5,000 credit card balance is at least $50, plus any fees, interest, and past-due amounts, if applicable. If you were late making a payment for the previous billing period, the credit card company may also add a late fee on top of your standard minimum payment.
What is the approximate minimum payment for a card with a $1000 balance? ›Method 1: Percent of the Balance + Finance Charge
1 So, for example, 1% of your balance plus the interest that has accrued. Let's say your balance is $1,000 and your annual percentage rate (APR) is 24%. Your minimum payment would be 1%—$10—plus your monthly finance charge—$20—for a total minimum payment of $30.
If your credit card statement reflects a zero minimum payment due - even if you have a balance on your card - it is because of recent, positive credit history. A review of your recent credit history and determination to waive your minimum monthly payment allows you to skip your monthly payment for a statement cycle.
What happens if I make less than the minimum payment? ›Your balance will likely go up
Late payment fees get added to your credit balance. You will also pay more interest for letting credit card debt linger. It's best to pay more than the minimum when you can afford to make more progress with your balance.
Is it better to pay your credit card in full or leave a balance? ›
Carrying a balance does not help your credit score, so it's always best to pay your balance in full each month. The impact of not paying in full each month depends on how large of a balance you're carrying compared to your credit limit.
What are the 2 things you must do to avoid paying interest on your credit card? ›If you'd like to avoid paying interest on your credit card, you have two options. You can pay off your balance before your grace period ends, or you can apply for a credit card that offers a 0 percent intro APR on purchases for up to 21 months.
How does Amex calculate minimum payment? ›- The interest charged on your statement, plus 1% of your new balance (excluding any overlimit amount, penalty fees, interest charges, or other plan balances).
- 2% of the new balance, excluding any overlimit amount, penalty fees, or other balances.
Credit card issuers can increase your minimum payment due to several factors. Depending on the issuer, your balance, interest and fees could affect the cost. Melissa Lambarena is a lead writer on the credit cards team at NerdWallet.
Do minimum payments hurt credit score? ›As long as you're paying your credit card minimum payment on time, it reflects positively on your payment history. But your credit scores may still be affected when you pay only the minimum each month, according to Sherry.
Is it OK to pay the minimum on credit cards once? ›Bottom line. While paying the full statement balance is preferred, there may be times when you can only make the minimum payment. For those situations, it can be OK to only pay the minimum — but not long term. Once you have the funds available to cover your balance, pay it off in full.
Is $2,000 a lot of credit card debt? ›$2,000 in credit card debt is manageable if you can make the minimum payments each month, or ideally more than that. But if it's hard to keep up with your payments, it's not manageable, and that debt can grow quickly due to interest charges.
Is $2,000 dollar credit limit good? ›Some folks may not find a $2,000 credit limit all that impressive, given that the average new card credit line was $5,021 in the third quarter of 2022, according to TransUnion. But when you consider that 56% of Americans can't cover a $1,000 emergency expense, $2,000 starts to look pretty good.
What is the maximum amount you should ever owe on a credit card with a $1000 credit limit? ›Never owe more than 20% or your credit limit. Ex: if you have a card with a $1000 credit limit, you should never owe more than $200 on that card. Charge more than 20% and your credit score can fall, even though the credit compant gave you a bigger credit limit.