Credit card minimum payments: Everything you need to know

In a nutshell

The minimum payment on a credit card is the smallest amount of money you can pay in a billing cycle without triggering late fees or penalty interest rates.

• Minimum payments on credit cards vary by card issuer, but are typically a small percentage of the full amount you owe.
• Credit card companies may also set a flat minimum amount such as $25 or $35.
• Paying only the minimum on a credit card makes carrying debt much more costly over time.

What the minimum payment on a credit card is for

Unlike installment loans that give consumers a lump sum and have them pay a set amount each month for a specific length of time, credit cards extend a line of credit that can be used and replenished over and over again. You can use credit cards for purchases up to your credit limit and pay down the balance immediately or make smaller monthly payments.

Credit card minimum payments are the least amount you can pay toward your credit card each month, and they vary by card issuer. Paying the minimum payment on a credit card lets the remaining amount owed roll into the next billing period, at which point credit card interest begins to accrue on the remaining balance.

According to the Federal Reserve, the average credit card interest rate has held steady at over 20% since 2023, making it very expensive to pay only the minimum amount on a credit card.

How the minimum payment on a credit card is calculated

Some credit card companies determine the minimum payment using a percentage of the total amount you owe, usually 2% to 4% of your balance. They may also use a flat amount as the minimum payment, such as $25 or $35.

Card issuers may even use a combination of these two strategies — a percentage of the total amount you owe or a flat fee, usually whichever is higher. If you owe a very small amount on your credit card, such as $10 or $15, however, you may be required to pay the full amount when the monthly billing period ends and the statement comes due.

Each card issuer calculates minimum payments differently. If you're curious about how your credit card company determines your minimum monthly payment, call the number on the back of your card to inquire.

Should you pay more than the minimum?

Making the minimum payment on a credit card can seem like a good idea when you're short on cash, but it can create a domino effect on your finances and make every purchase you charge to your card cost considerably more. This is mostly due to the sky-high interest rates credit cards charge, and the fact that paying only the minimum means leaving a larger balance to accrue interest each month.

Imagine you have $6,000 in credit card debt on a card with an APR of 21.99% and a minimum monthly payment of $120 (2% of the balance). If you paid only the minimum payment, you would fork over $10,388 in interest as you paid down debt over 11 years and five months (137 months). And remember, that amount is only if you refrain from using your card for any new purchases.

If you paid double the minimum payment ($240 per month), however, you would pay just $2,098 in interest and get out of debt in two years and 10 months (34 months). In this example, paying double the minimum payment each month saves you $8,290 in credit card interest and more than 100 months of making payments.

In this case, paying the minimum is 5x more expensive than paying twice the monthly minimum — the difference between being indebted for two years or more than a decade.

How to set up automatic credit card payments

If you're worried about racking up credit card debt, it can make sense to set up automatic payments for the total amount you owe — if you have enough money in your checking account each month to cover your charges. Setting up automatic monthly payments for the minimum payment due can also make sense if you want to ensure you never miss a payment or get hit with late fees or penalty rates.

The process for setting up automatic credit card payments varies by issuer, yet most credit card companies let you do this online or in their mobile app.

How much of the minimum payment is applied to the balance?

While credit card interest is based on an annual percentage rate (APR), it's important to remember that interest accrues daily on balances owed using a factor called a daily periodic rate (DPR). The DPR on a credit card is determined by taking the APR and dividing it by the number of days in a year. If your credit card has an APR of 21.99%, this means the DPR on that card is 0.0602%.

Credit cards typically provide a grace period of 21 days where interest doesn't accrue on new charges. The grace period begins on the day your credit card statement is created, and it ends on your credit card payment due date.

Balances that remain after the payment due date begin accruing interest using the DPR. The amount of your payment left after accounting for each day's interest within a billing period is what goes toward the principal amount you owe each month. This means that, when interest rates are high, more of your payment goes to interest and less is leftover to pay off your balance.

Let's use the same example above to show how much of a credit card payment goes toward the actual balance owed each month. If you owed $6,000 on a credit card with a 21.99% APR and paid just $120 per month, here's how your payments would be allocated during the first 12 months paying off debt.

As you can see, just over $10 per month out of a $120 minimum monthly payment is going toward the balance owed each month, and this amount increases very slowly since so little of the actual debt is paid down. In other words, roughly 8% of your payment goes to principal, while 92% goes to interest.

How to reduce credit card debt

You may not have to fork over thousands in credit card interest and spend years paying off your credit card debt. You can speed up the process, pay less in interest or both if you're serious about debt repayment and have some additional funds to expedite the process.

Consider the following steps to reduce debt and pay off credit card balances faster:

Pay more than the minimum each month

First off, you should always strive to pay more than the minimum payment on your credit card each month. Doing so reduces the amount you owe the following billing cycle, which reduces the amount of interest you're charged as a result.

Remember that every penny you pay above your credit card's minimum payment goes toward the actual balance you owe each month, so paying more than the minimum can have a dramatic effect.

In the example above, someone paying $120 per month toward $6,000 in credit card debt at 21.99% APR would see just $10.05 per month of their payment go toward the balance they owe while the remaining $109.95 goes toward interest during month one. If they doubled the monthly payment to $240, however, $130.05 would go toward the balance owed and the same $109.95 would go toward interest.

Consider a balance transfer

There are also balance transfer credit cards that help consumers get out of debt faster, save money on interest and potentially both. The best low interest credit cards typically extend 0% APR on transferred balances for up to 21 months, although balance transfer fees (usually 3% or 5% of the debt transferred) apply. Even after paying a balance transfer fee, these cards help consumers glean considerable savings.

The Citi Double Cash Card is a good example since it offers 0% APR on balance transfers for 18 months, followed by a variable APR of 19.24% to 29.24%. A balance transfer fee of 3% (minimum $5) also applies on balances transferred to this card within the first four months of account opening. After that, the balance transfer fee goes up to 5% (minimum $5).

If someone transferred $6,000 in credit card debt to their Citi Double Cash Card shortly after account approval, they would owe a balance transfer fee of $180. This means they would begin the debt repayment process owing $6,180, and they would have 18 months to pay down their debt without any interest.

If they could make a monthly payment of $344 for those 18 months, they could become entirely debt-free during that time with $0 in interest charges.

Negotiate a lower interest rate

You may also be able to negotiate a lower interest rate on your credit cards, which can help you save on interest and have more of your monthly payment allocated to the principal balance each month. This strategy makes sense if you want to pay down debt with the cards you currently have, versus applying for another card and transferring your debt.

Calling the number on the back of your card is the best way to find out if you can get a lower interest rate. Remember, the worst that can happen is your card issuer saying "no."

Stop using credit cards for purchases

Whatever strategy you use to get out of credit card debt, you'll have more success if you stop using credit cards for new purchases. Every dollar you charge is another dollar you'll have to pay off later, so switch to debit cards or cash for new purchases instead.

Once you're completely out of debt, you can decide whether using credit cards for convenience or rewards is worth it.

What are your minimum payment rights?

Due to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), card issuers are legally required to warn consumers about paying only the minimum payment on each monthly billing statement. The warning must include the following statement:

"Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance."

What happens if you miss the minimum payment on your card?

Making the minimum payment on a credit card is less than ideal and for more than one reason. Not only do you rack up more interest charges this way, but paying only the minimum means you pay off debt at a much slower pace.

That said, paying the minimum payment on a credit card is still better than paying nothing at all. Missing a monthly payment on your card means you will likely be hit with a late fee right off the bat, and you may also be charged a penalty interest rate.

Your credit score will also take a hit if you're late on your credit card payment or you miss a payment altogether. This is because your payment history is the most important factor used to determine FICO scores, making up 35% of your score. However, the credit bureau Equifax says most late payments won't show up on your credit reports until you've missed a payment by at least 30 days.

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The minimum payment on a credit card is the least amount you can get away with paying in a billing cycle, but you should always pay more than the minimum if you can. Doing so will help you reduce the balance carried over to the next billing period, and this reduces the amount of interest you're charged. Paying more than the minimum can also help you get out of debt faster, particularly if you stop using credit cards for new purchases.

Frequently asked questions (FAQs)

What happens if I make only the minimum payment?

Making the minimum payment on a credit card means more of your balance is carried over into the next billing period. This increases the amount of interest you owe, which can make paying off debt more costly and difficult in the future.

Do minimum payments affect my credit?

Paying only the minimum payment on your credit card is better than nothing since it helps you show positive payment history when you pay on time. However, making only the minimum payment on your card and continuing to use the card for purchases can lead to a high credit utilization ratio — a factor that makes up 30% of FICO scores. In other words, making only the minimum payment and allowing your debt to grow can hurt your credit score over time.

Can I negotiate my minimum payment with my credit card issuer?

It may be possible to negotiate a lower minimum payment with your credit card issuer, but you won't know unless you ask. Call the number on the back of your card to explore your options for a lower monthly payment, a lower interest rate or both.