Calculate the True Cost of Paying the Minimum Payment
Every credit card bill comes with a minimum payment, but what is the minimum payment and why do banks set a minimum payment? The minimum payment is the lowest amount you have to pay each month to keep you account in good standing. Banks and other credit issuers usually calculate this as a percentage of what you currently owe. Most banks typically require you to pay anywhere from 2% - 4% of your account balance.
If you owe $10,000 for example, you only need to pay $400 if you bank requires you to make a minimum payment of 4% of your debt amount. Because the minimum payment is calculated as a percentage of your outstanding debt, your minimum payment will actually decrease as you pay off your debt. This may sound like a great deal because you don’t have pay as much each month, but sticking to your bank’s minimum payment can be a costly mistake.
To see why paying the minimum amount is so costly, enter your credit card debt and your interest rate into the calculator above. Tell us the amount you can afford to pay and find out how much faster you will be debt free and how much interest you’d save by making the same payment every month.