It can be tempting to just pay that small minimum amount due on your credit card bill, but doing so can end up being really expensive.
When your receive your credit card bill, there are typically three amounts you can pay: the minimum due, the statement balance and the current balance. The minimum payment is the smallest amount of money that you have to pay each month to keep your account in good standing. The statement balance is the total balance on your account for that billing cycle. The current balance is the total amount of your most recent bill plus any recent charges.
Experts recommend you pay the statement balance in full every month, but there are times when that may not be possible. In those cases, it's important to make at least the minimum payment so your account stays current and you don't incur any late fees or penalty APRs.
Minimum payments are calculated differently bank by bank, but most commonly a "floor" is set, usually $25 or $35, which is the lowest minimum payment you'll be charged.
However, if your statement balance is less than the floor, your minimum payment will be the total balance. For example, if the floor is $35 but your balance is $11.95, your minimum payment will equal your statement balance — $11.95.
While it's important to make at least the minimum payment, it's not ideal to carry a balance from month to month, because you'll rack up interest charges (unless you're benefiting from an intro 0% APR) and risk falling into debt.
According to the Credit CARD Act of 2009, card issuers are legally required to include a "minimum payment warning" on each billing statement. This is often represented by a table that tells you the total time to pay off your balance and the total amount you'll end up paying (including interest), if you only pay the minimum. Sometimes there will be an example showing what happens if you pay more than the minimum, and the resulting lower interest charges.
Here's an example of the table shown on my last statement. For reference, my minimum payment is $25 and interest rate 15.99% variable.
If I only make the minimum payment of $25 each, it will take me an estimated four years to pay off my $827.32 balance. During this time, I'd accrue about $285.68 in interest charges. By increasing my minimum payment by only $4 to $29, I'd save $57 and decrease the time to pay off my balance to roughly three years.
The consequences of paying only the minimum are costly, so pay off your balance in full each month to avoid high interest charges and debt.
Beyond a table outlining the results of paying only the minimum, some cards, such as the Apple Card, are beginning to include interactive payment tools that show you the interest charges you'll incur if you only pay the minimum.
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. At the very least, you should try to pay more than the minimum, even if you can't afford the full balance.
If you're having trouble paying your statement in full regularly, that can be a sign of a larger issue. Review your cash flow and spending habits to see if there's room to cut costs. You can also change your bill's due date to one that's more convenient for when you get paid.
Another option is to open a credit card offering an intro 0% APR on new purchases or a balance transfer credit card offering no interest for up to 21 months.
If you want a longer balance transfer intro period, consider the Citi Simplicity® Card with a 0% APR for the first 18 months after account opening on balance transfers (then 14.74% to 24.74% variable APR).
Information about the Citi Simplicity® Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.