Credit cards are useful tools, as long as you keep the balance under control and your account remains in good standing.
Many cardholders have questions such as “What is my minimum payment?” How payments are calculated can vary from one credit card company to another.
However, a payment’s impact on your credit score is largely the same from lender to lender.
Paying all of your monthly debts on time is a critical factor in building credit. Still, if you pay only the minimum each month, your debt could end up costing you far more than it should.
Understanding how minimum payments work leaves you much better equipped to keep yourself financially healthy.
What Is My Minimum Payment? Credit Card Basics
After you use a credit card, you must pay off at least a portion of what you owe each month. Your credit card issuer will determine the minimum amount you must pay to keep your account current.
What is the monthly payment for a credit card? The minimum payment will include a certain percentage of your balance, as well as the interest you accumulated over the billing period.
If you’ve just opened a card, you might ask, “What is my credit card payment due date?” This is different for everyone.
Your credit card issuer will set a monthly due date for your card. You must pay the minimum by this date in order to keep your account current.
The easiest way to avoid missing payments is to set them on autopay. You can choose to autopay the minimum, a custom amount, or the entire balance.
How Lenders Calculate Minimum Credit Card Payments
How do monthly payments work on a credit card? According to Experian, there are three common ways credit card companies determine minimum payments.
1. Calculating a Fixed Percentage of Your Balance
If your minimum payments fluctuate from month to month, the amount you owe is likely determined by your balance.
A card issuer that uses this method will usually require you to pay 2% to 4% of your total balance. The lender subtracts any fees or interest from this amount and applies the rest to your outstanding balance.
2. Charging You a Fixed Percentage Plus Fees
Instead of subtracting fees and interest from the percentage of your balance, some credit card companies require you to pay all accumulated interest and fees plus a smaller percentage of your balance.
The smaller percentage of the balance is typically around 1%.
3. Setting a Fixed Dollar Amount
Instead of calculating a minimum payment on a credit card based on a percentage, your credit card issuer might set your monthly minimum at a particular dollar amount.
This is more likely if your balance is relatively low. For instance, a credit card company might charge you a flat $35 per month if your balance is only a few hundred dollars.
Is It OK to Make Minimum Payments on a Credit Card?
If money is tight, making the minimum payment each month will keep your account current and help your credit score. However, there are significant benefits to paying more than the minimum. They include the following:
You Pay Less Over Time
Credit cards have very high interest rates — typically much higher than other forms of consumer debt such as auto loans and mortgages. Paying down your balance means you’ll pay less in interest over time.
Even putting an extra $5 or $10 toward your payment each month can make a difference.
You Might Reach Your Financial Goals Faster
Debt can easily get in the way of your financial goals. Paying more than the minimum saves you money. This means it can help you achieve financial goals faster.
What to Do if You Can’t Make Your Minimum Payment
If you’re struggling with finances and can’t afford your minimum payments, reach out to the credit card company. Taking this step may be stressful, but credit card companies usually appreciate proactive customers.
Depending on your situation, the company might agree to do one or more of the following:
- Allow you to pause minimum payments for a period
- Reduce your interest rate
- Forgive late fees
- Change the due date so that it better lines up with your paycheck
Credit card companies aren’t obligated to work with you, and some may not. But if you reach out and ask, the worst they can do is say no.
Credit Card Debt Doesn’t Have to Be All-Consuming
Are you asking, “What is my minimum payment?” Credit card customers who learn the answer to this question sometimes decide the minimum is all they’ll pay.
However, when you know a little more about credit cards and how they work, you’ll understand why paying even a little extra each month adds up.
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