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Making only minimum payments on credit card debt could cost you thousands and take over a decade to repay

Making only the minimum payment on your credit card is necessary at times, but making it a habit will cost more in interest and extend the amount of time you have to repay your debt.

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A minimum payment is often the smallest number on your credit card statement, but it's one of the most important. Your minimum payment is the amount that you're required to pay by your due date in order to keep your account current and in good standing.

If you pay less than the minimum or miss a payment, you can hurt your credit score. And while you should always pay at least the minimum due, you should strive to pay your balance in full to avoid costly interest charges.

Below, Select breaks down how much you would wind up paying in interest if you only made minimum payments on your credit card balance.

How credit card issuers calculate minimum payments

Before we dive into an example on how much it could cost the average American if they only make minimum payments, we'll first review how a minimum payment is calculated.

Many credit card issuers calculate your minimum payment as the greater of:

  • A set dollar amount, typically $35
  • A percentage of your balance, plus interest charges and late fees

For example, terms for the Chase Freedom® credit card state:

Minimum Payment: We will calculate the minimum payment as the larger of: 1) $35 (or total amount you owe if less than $35); or 2) the sum of 1% of the new balance, the periodic interest charges, and late fees we have billed you on the statement for which your minimum payment is calculated.

Let's take three scenarios:

  1. The above calculation equals $147, so your minimum payment would be $147.
  2. The above calculation equals $33, so your minimum payment would be $35.
  3. Your balance is less than $35, so your minimum payment would simply equal your balance amount.

The true cost of only making minimum payments

Making only minimum payments on your credit card can significantly extend the time it takes you to pay off debt while also increasing the amount of interest you pay.

On average, Americans carry $6,194 in credit card debt, which can add up to expensive interest charges if you only pay the minimum on a high-interest card.

In order to calculate the true cost of only making minimum payments on a credit card, we used a balance of $6,194 and an interest rate of roughly 16.61%, which is the average credit card APR according to the Fed's most recent data from February 2020. We used the minimum payment definition from above, using the greater of $35 or 1% of your balance plus interest charges and assumed no late fees or penalties.

By crunching the numbers, we calculated that it would take you approximately 17 years and three months to pay off your debt if you only paid the minimum. During this time, you'd pay a total of $7,286 in interest, bringing the total amount of all your payments to $13,480.

Payoff time: 17 years and three months

Total paid in interest: $7,286

Total paid altogether: $13,480

Keep in mind, your original (principal) balance was $6,194, so that means you'd pay more in interest ($7,286) than your principal balance.

Now that you understand the true cost of making only minimum payments, you should make it a goal to pay your credit card balance in full every month.

Granted, there may be times when you're facing financial hardship that require you to temporarily only make minimum payments, but once you're in a better financial situation, you can start paying your balance in full.

What to do if you can't pay more than the minimum

If you're having trouble making more than minimum payments, there are some relief options. You can consider transferring your debt to a balance transfer card that offers an introductory interest-free period. For example, the Citi Simplicity® Card offers 0% intro APR for 21 months on balance transfers from date of first transfer (after, 18.99% - 29.74% variable APR). Balance transfers must be completed within four months of account opening. There is an introductory balance transfer fee of 3% or $5, whichever is greater for transfers completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).

During the introductory interest-free period, you won't incur interest on your transferred balance and can benefit from all your payments going toward your principal balance — instead of principal plus interest — as long as you pay off your debt before the 0% APR ends.

If you still have a balance once the intro period ends, you'll start to incur interest at the standard APR. Also, some cards may charge deferred interest (which is all the interest you would've been charged during the intro period), but the cards mentioned here have no deferred interest.

Take note that most balance transfer cards require good credit or excellent credit (scores 670 and above). If your credit score falls below 670, you may have to build credit before you can open a balance transfer card.

However, there is a balance transfer card for people with fair credit (scores 580 to 669) — the Aspire Platinum Mastercard®. With the Aspire card, you can benefit from a 0% APR for the first six billing cycles on balance transfers and purchases (after 8.15% to 18.00% variable APR).

In addition to credit score requirements, you may be unable to transfer your full balance since card issuers often impose limits on how much debt you can transfer.

If a balance transfer credit card isn't an option for you, you can consider credit card forbearance programs that can provide temporary relief from late fees and monthly payments. These temporary programs can protect your credit score while you can't make your payments, but you'll likely incur interest during forbearance, so use them sparingly.

Information about the Chase Freedom®, Aspire Platinum Mastercard® and Citi Simplicity® Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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