In What Condition Can You Make Minimum Payment on Credit Cards?

It’s important to know what your minimum payment is, as well as when you’re allowed to pay only that. In this post, The article explains how credit card companies determine the minimum monthly card minimum payment.

What Is the Minimum Payment Due?

The credit card minimum payment due is the smallest amount of money you must pay on your credit card bill. The exact percentage varies based on your account’s interest rate and balance, but it’s usually around 2%.

The minimum payment due will be listed on your statement each month, as well as an estimate of how long it would take to pay off your balance if you only paid this amount. For example: “You currently owe $5,000 and have been charged 21% APR interest for using more than 30 days past due.” With these numbers in mind, here’s what that statement could look like:

  • Payment due: $200
  • Estimated payoff time without further payments: 222 months
  • Estimated payoff time with another monthly payment (at 2%): 42 months

The Definition of a Minimum Payment

The definition of a minimum payment is the lowest possible amount you can pay on your credit card bill. This is calculated by dividing the balance owed by the number of payments due, so if you have $10,000 in debt and only have one remaining payment before being charged interest, your minimum payment will be $1000.

The main difference between a regular payment and a minimum payment is that interest charges are not included in the minimum amount due each month. So while it might be tempting to make only this amount when possible, doing so could cause you to accumulate more debt than necessary.

The Calculation of Minimum Payments

Remember, the minimum payment is calculated as a percentage of your total balance. This can be confusing because it might not be apparent that the minimum payment will increase each month as you pay down your balance.

The amount of the minimum payment is based on several factors:

  • The total amount owed (the balance)
  • Interest and fees charged to you by the lender
  • How recently was this card used (how much interest has accrued since last month)

When Can You Make Only the Minimum Payment on a Credit Card?

  • If you’re in a financial crisis and need to pay off your balance quickly, consider making only the minimum payment on your credit card.
  • If you have a large balance that takes years to pay off, making only the minimum payment may be the best option for keeping interest charges low.
  • If paying off your debt as quickly as possible is essential to you, then make only minimum payments until it’s paid off—but do not use this strategy if it will lead to increasing debt over time because of high-interest rates.

“Credit cards can be a relatively easy way to build good credit: When you pay in full and on time, that behavior is reported to the credit bureaus and often reflects well on your report,” suggest SoFi experts.

The rule of thumb is that if you can make more than the minimum payment on a credit card, do so. Not only will this help lower your interest rates and save money in the long run, but it also decreases your chances of defaulting on your payments.

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