Credit Card Minimum Payments Are More Dangerous Than You Think

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Sending in just your minimum credit card payment is the worst thing you can do for your debt — other than not paying it at all. Minimum payments are designed to keep you in debt as long as possible, even when paying off small amounts of debt. So even though you think you’re chipping away at your balance, often you’re not.

I learned this the hard way when I had to pay off a credit card. I would pay the minimum and sometimes a little extra, but every time I looked at my balance, it remained virtually unchanged. It wasn’t until I got off the minimum payments cycle that I started to make headway on paying it all off.

Here’s what I learned about credit card minimum payments.

Credit card minimum payments: An endless loop

First of all, don’t feel bad if you’ve been paying nothing more than the minimum. The National Bureau of Economic Research did an extensive survey of U.S. credit card debt and found that 29 percent of account holders were doing just that.

The New York Times highlighted a significant finding from the study — those who could pay more often didn’t. Instead, they were “highly sensitive” to the minimum due. In other words, many followed directions rather than analyzing whether they should pay more.

This can be costly. Here’s why.

In this example, we’ll use the current average interest rate (13.61%) and credit card debt amount per cardholder in the U.S. ($4,061). If you had a minimum payment of 2 percent, your monthly minimum due would be $81.22. If you only paid that every month, it would take more than 22 years to pay off the card. And the amount paid in total would be a whopping $8,761.60.

credit card minimum payment

But what if you doubled your monthly credit card payment? It would be a potentially still-manageable $162.44. And that would reduce your repayment time to just over nine years, with a total balance of $5,588.23.

credit card minimum payment

By doubling the payment, you can shave 13 years off the debt repayment and save almost $3,200 on the total balance.

How to find room to pay more than the minimum due

The question for some might not be why you should increase the amount paid on a credit card, but how to increase the amount paid. If that’s the case for you, here are a few things you might want to try.

1. Reduce your credit card interest rate

The best way to gain traction on your repayment is to reduce your credit card interest rate. Believe it or not, one way to do this is to call your credit card company and ask them to reduce your rate. If you have a positive history with them, they might be willing to accommodate you.

If you do get a lower rate, a larger portion of your monthly credit card payment will go toward the principal balance — but you’ll still want to pay more than the minimum.

2. Consolidate or refinance your credit card debt

Another way to lower your interest rate is to consolidate or refinance your credit card debt with a balance transfer credit card or a personal loan. These are products that can pay off your credit card (or cards) and help you snag a lower interest rate.

Again, lowering the interest rate can sometimes lower your monthly payments, but more importantly, it can help more of your money go toward the balance.

3. Redo (or start) a monthly budget

If you’ve never created a budget, now’s the time to start. And if you already have one, redoing it can sometimes do wonders.

You might find there’s room for flexibility or things you’re just not interested in continuing to pay for. It also helps to realize that you don’t always have to cut items from your budget. Just reducing the frequency of those items can make a big difference.

Then apply any extra money you find to add more to your credit card payments.

You can beat the credit card minimum payments game

Once you understand how little paying the minimum does for your debt payoff strategy, you have the opportunity to do something about it. Whether it’s refinancing your debt, configuring a new budget, or even finding a way to earn extra money to help with your payments, there are many things you can do to make an impact on your debt.

As long as you don’t succumb to a debt repayment that’s too long and expensive because of minimum payments, then you can win the credit card game and reach debt freedom.

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Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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5.99% – 17.88%1 $5,000 to $100,000
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  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
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