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I wouldn’t advise only making minimum payments on your credit cards, but it can make sense in certain situations. Most of the time, you’ll want to steer clear of minimum payments because they lead to interest charges and debt piling up fast. But if you are in a financial pinch or using the snowball or avalanche methods (don’t worry, I’ll cover them later), making minimum payments could actually be helpful.
A minimum payment is the least amount you must pay by the due date to maintain your account in good standing. It normally includes a portion of what you owe, some accrued interest charged, and possibly other fees, such as late or annual charges.
A minimum credit card payment is the smallest amount you must pay by the due date to keep your account in good standing and avoid penalties.
Just remember: paying only the minimum every month without a plan is like treading water in a fast river: You won’t get much done, and if you’re not careful, you’ll find yourself drowning in debt.
I’m here to help guide you through those waters and show you how minimum payments get calculated, what they mean for your credit score, and why it’s a good idea to pay more than the minimum.
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How Minimum Payments Work
When you make the minimum payment on a credit card, it’s usually some interest, some fees, and a little bit of the principal you owe. Exactly how much depends on how your card issuer does the figuring — either a fixed amount or based on a percent of what you owe.
Interest and Fees
Interest rates can pack a wallop when you make minimum payments. The higher the APR, the more your payment goes directly to cover interest rather than knock down that principal balance.

So, if you’ve got a card with a high interest rate and you’re only paying the minimum, most of your hard-earned money’s going toward interest, and barely any is chipping away at what you actually owe.
You also must deal with credit card companies that pile fees atop your accumulated interest. Late fees and annual fees can increase the minimum payment. If you don’t pay those fees, they’ll start collecting interest, too, and before you know it, your debt has grown out of control.
You should understand how interest rates and fees can make your minimum payment balloon. Once you see how all those factors work together, you’ll be chomping at the bit to pay more than the minimum and dodge those pesky extra costs whenever you can.
Balance Percentage
Most credit card companies use a base percentage of what you owe to set your minimum payment. This is normally somewhere between 1% and 5%.

Suppose you owe $1,000 at a minimum payment rate of 2%. Your monthly statement will list the minimum due as $20.
But here’s the stinger: only the tiniest fraction of it goes toward the principal.
I hope you plan on a long lifetime because, with a percentage-based minimum payment, you might be paying off principal debt for an eternity.
Because only a minuscule amount goes toward the principal, the remaining balance continues to accrue interest, making it seem as if you’re trudging uphill with a load of bricks on your back.
Fixed Minimum Amount
Some card companies set a fixed minimum payment that’s higher than what you’d owe using the percentage method.

This arrangement helps you pay interest and fees and a little more of the principal in one fell swoop, getting you out of debt faster.
In other words, you’ll pay off that debt sooner when the fixed amount is greater than the percentage-based amount.
For example, if the fixed minimum payment is $25 and the percentage-based payment is only $20, more of that extra $5 makes its way toward your principal, ultimately saving you on interest in the long run.
However, the savings may be insignificant if you have big balances on your credit card.
Implications of Only Paying the Minimum
If you only make minimum payments, you can run into massive trouble. Paying the minimum extends the period for clearing your debt, and it racks up a pile of interest. After a while, it can also hit your credit score and threaten your general financial health.
Impact on Credit Score
Paying the minimum amount every month will keep the lender off your back, but it can devastate your credit score. You see, when you keep carrying a high balance, it bloats your credit utilization ratio (i.e., just a fancy term for how much of the credit limit you are using).
Credit Utilization Ratio Calculation
Card A | Card B | Card C | Overall | |
---|---|---|---|---|
Balance | $500 | $0 | $2,150 | $2,650 |
Credit Limit | $2,000 | $3,000 | $5,000 | $10,000 |
Utilization Ratio | 25% | 0% | 43% | 26.50% |
If your CUR is over 30%, that tells your creditors that you’re leaning on your credit too much, and that’ll knock your score down a peg.
With only those minimal payments, your debt can grow like a weed because costs outpace what you’re paying. That dents your credit score since you’re racking up debt faster than bringing it down. If your debt stays high, it gets harder to qualify for credit because lenders start seeing you as a risky customer.
Making only those minimum payments isn’t the end of the world because you’re avoiding late payments. This keeps the card issuer happy just salivating over all that interest it’s going to squeeze out of you, but it doesn’t help your credit score. The magic is in paying more than the required minimum every month. That way, your debt shrinks while your credit profile rises.
Accumulation of Interest
When you’re only paying the minimum, most of that money goes straight toward covering interest, not your principal. So the rest of your balance just sits there collecting more interest. The next thing you know, you’re in a debt spiral that’s tough to crawl out of.
Now, over the long haul, the cost of carrying a balance can be ridiculously high. For example, suppose you have a balance of $1,000 on a card with 18% interest, and you only make the minimum 2% payment each month. That could take over 30 years to pay off!
Meanwhile, you’d be paying way more in interest than you ever owed in the first place. That’s why you must understand how interest adds up when you’re just making minimum payments. Paying more brings down the principal faster, cuts the total interest you’ll eventually pay.
Debt Repayment Timeline
The biggest eye-opener is probably just the realization of how long debt would take to pay off if you’re only making minimum payments.
Take, for instance, that example earlier. With a balance of $1,000, an 18% interest rate, and only a 2% minimum payment, you’re looking at multiple decades before you finally clear that debt. Why? Because most of what you pay gets eaten up by interest, not by the debt itself. Just watch the time go by as your balance just crawls along!
Here is an example comparison of four different repayment scenarios:
SCENARIO | PAYBACK PERIOD | TOTAL PAYBACK AMOUNT | INTEREST PAID |
---|---|---|---|
Minimum Payment Only | 361 months | $3,348.02 | $2,348.02 |
Minimum Payment + $50 | 20 months | $1,197.14 | $197.14 |
Minimum Payment + $100 | 10 months | $1,106.75 | $106.75 |
Minimum Payment + $200 | 5 months | $1,059.20 | $59.20 |
Pay more than the minimum each month, and you’ll cut that debt payback period way down in no time, saving yourself on interest. To get an idea of how this works, look at the third scenario: Minimum Payment + $100. You see, tossing in those extra payments wipes out your balance in just 10 months.
Of course, scenarios only work if you stick your credit card in the sock drawer to keep from using it until you repay your entire balance. Remember, a higher balance will slow down your repayment schedule.
Strategies For Multiple Credit Card Debts
Managing multiple credit card debts can be scary. However, you need not fear — all you need is a plan of attack to rope in your debt.
First, list each card, the amount owed on it, and its APR. If you are unsure about a card’s APR, take a look at your most recent statements or give the company a call. With all that information in your possession, it’s time to prioritize and choose which card you’re going to tackle first. There are two popular ways people go about doing it: the snowball and avalanche methods.

The snowball method focuses on paying off your credit card debts from the lowest amount owed to the highest, regardless of the individual card APR. You pay the minimum payments on all of your cards except the one with the lowest overall balance and add any extra money to that payment.
This should allow you to eliminate the balance on that card quickly, giving you a win and helping you feel more motivated as you move forward.
The avalanche method prioritizes high-interest debt and has you make a bigger payment on your highest interest credit card first, while making minimum payments on all of the others. This may mean you spend longer paying off the first card, depending on how much you owe, but the idea is to save you a ton of money on interest in the long haul.
What Happens When You Miss Minimum Payments
Missing a minimum payment is terrible for your financial health. Here’s why.
Late Fees and Penalties
Miss a payment? Your card issuer will likely hit you with a late fee. Rules vary among companies, but most of them will charge you anywhere from $25 to $40 bucks each time you fail to pay (although new rules may reduce the assessment). They’ll add that to next month’s bill, which will puff up your balance, making it even harder to catch up.
The problem is, once you unleash that penalty rate, it’s as difficult to get rid of as glitter on carpet.
The higher interest will make it all the more difficult to catch up on your unpaid balance. That’s why you always want to pay at least the minimum by the due date.
That is not all. Missing a payment can trigger a penalty interest rate if your card happens to have one. Imagine how much it will sting to see your regular interest rate of 18% jump to a penalty rate of 29.99%! That high rate applies to both what you already owe and all new charges.
Credit Score Impact
Missing payments will also harm your credit score. Your payment history is the biggest chunk of your credit score, so one missed payment can really do some damage. And the longer you let that payment slide, the worse it gets.
Happily, you have a 30-day waiting period before your overdue payment starts befouling your score. That’s a federal rule, and it gives you a little buffer before things go south. But when those 30 days are up, your lender’s going to report the lateness to the credit bureaus, and they’ll continue to report periodically.

That debt’s likely to get sold to a collection agency, and then you’ll be getting not-so-friendly calls and letters. They may even take you to court if you don’t pay up. It takes time to bounce back from one missed payment. And even after you pay it, that missed payment can sit on your credit report for as long as seven years.
But here’s the good news: Its impact will gradually lessen if you make all your future payments on time and work on paying down your balances. Try to get ahead of the game as soon as possible by repairing your credit score after having missed a payment. Make all your future payments on time, and begin the work of bringing those balances down so that you can lower your credit utilization ratio. With time, creditworthy behavior will heal the wound.
Loss of Promotional Benefits
Just one missed payment can eliminate your 0% APR promotion. Most of those sweet deals hinge on you making the payments on time. Slip up on that, and most likely, the card issuer is going to yank that promo faster than you can say, “Forgive me!”
And just like that, your interest rate will jump up, either to the standard APR or, if present, the penalty rate.
You’ll say goodbye to all those nice benefits from your 0% introductory offer, meaning the interest charges on any balance you already have will immediately ratchet up. Your cardmember agreement contains all the details on just how this works. Once the promotion’s canceled, hefty interest charges start piling onto your unpaid balance like snow in a blizzard.
The best way to keep these valuable benefits is by paying at least the minimum amount on time. Set up automatic payments and reminders so you don’t get caught flat-footed.
Legal and Collection Action
If you default on your credit card, your issuer can sic a collection agency on you or, worse, haul you into court. Either the issuer or the collection agency can file a lawsuit to retrieve what you owe. If the court rules in their favor, they may be able to garnish your wages or dip into your bank accounts to collect what’s due. Doesn’t that sound fun?
The ordeal usually starts when your account is turned over to a collection agency, some 180 days after you have stopped paying.
When that debt enters collections, it will plow into your credit score, staying on your report for a full seven years, even if you later repay the debt.
Dealing with collection agencies can be a bigger headache than your annual review, taking up lots of time and causing no end of stress. If you have any trouble making one of your payments, it’s better to call your credit card company right away. Many of them want to work with you to establish a payment plan to get you back on track and restore your credit over time.
Hardship Accommodations and Programs
Hardship programs may save you when you’re neck-deep in debt. These tailor-made programs help you when you’re in a tight financial spot, barely fighting off creditors demanding you pay your credit card bills.
Here are some common kinds of hardship programs and accommodations made by credit card companies:
HARDSHIP ACCOMMODATION | DESCRIPTION |
---|---|
Lower Interest Rates | Temporary or permanent reduction in interest rates to lower the amount of interest accruing on your balance |
Waived Fees | Waiving late fees or over-the-limit fees to reduce the overall cost of your debt |
Payment Plans | Extended repayment terms or reduced minimum payments to make monthly payments more affordable |
Debt Management Plans | Working with a credit counseling agency to negotiate lower interest rates and fees with consolidated payments through the agency |
Deferred Payments | Temporary forbearance allows you to skip payments for a short period without penalties, though interest may still accrue |
Debt Settlement | Negotiated settlements where issuers agree to accept a lump sum payment smaller than the full amount owed |
Reduced Monthly Payments | Adjustments based on your current income to make monthly payments more manageable |
Extended Grace Period | Additional time to make your payment without incurring late fees or penalties |
Here are the steps to enroll in a hardship program:
- Talk to Your Issuer: Start by reaching out to your credit card issuer. Give its customer service department a call and explain your financial situation to them. Ask them what types of hardship programs they have that can help you corral your debt.
- Explain your situation: Be prepared to show them the proof! You will likely have to back up your story with proof of income, medical bills, unemployment benefits, and so forth.
- Negotiate Terms: When you make contact, the issuer will usually work with you to hash out the terms of the hardship program. They should be able to help you decide the best way to handle your debt.
- Follow-through: This is where the rubber hits the road — can you stick to the terms of the program like glue? Make sure you pay on time so you don’t get further behind. If you fail, you’ll end up with more problems than a leaky roof.
If executed right, these hardship programs may remove a huge burden from your shoulders. The key is to speak to your card issuer before things take a turn for the worse.
Once you get that conversation going, you will be better placed to sort your options out and find ways of wriggling out of trouble.
Pay More Than the Minimum Payment If You Can
Paying off more than the minimum on your credit card will get you out of debt faster and can save you a lot of interest. A little bit extra every month makes a big difference, like adding kindling to a fire. Quicker payoffs boost your credit score and free up cash for saving or spending on what’s really important.
If you’re in a bind, investigate hardship programs or seek advice, but always keep your eyes on the prize: financial freedom! With a solid plan in place and some grit, you can wrangle that debt and take control of your finances.