Each month, when your credit card bill arrives, you have a choice: Pay your entire card balance in full or make only the minimum payment required.

It may seem easier — or even financially prudent — to pay just the minimum payment required. However, that decision can end up costing you later. Any charges not covered by your minimum payment will start to earn interest, which can quickly lead to lasting debt, given today’s high interest rates.

We get it: It’s not always possible to pay your credit card bill in full, especially if you’ve already fallen behind. But paying your balance in full whenever you can is the best way to avoid costly interest altogether. Even just an extra $50 over the minimum each month can go a long way in helping you avoid lasting credit card debt.

If you have been making minimum payments, or you’re considering doing so when your next payment is due, here’s how you can still make the best of the situation to protect your finances and credit long-term — and what to know about minimum payments today.

How does a credit card minimum payment work?

A credit card minimum payment is the minimum amount you must pay by the due date to keep your account in good standing. Paying at least the minimum will also help you avoid late payment fees and penalties.

You can locate your minimum payment amount on your credit card statement or through your mobile or online account. Typically, your statement balance, total balance, and minimum amount due will be listed at the top of your monthly statement.

How is my minimum payment calculated?

Your minimum payment is typically a percentage of the total balance — with any interest, fees, or past-due payments added. If your total balance is under a certain amount, you may simply owe the total balance as the minimum.

Minimum payments can differ depending on your credit card issuer.

Take Capital One, for example. The Capital One Quicksilver Cash Rewards Credit Card, Capital One Platinum Credit Card, and Capital One Venture X Rewards Credit Card, among others, all have the same minimum payment calculation.

With a balance of less than $25, your minimum payment is that total amount. If your balance is over $25, the minimum payment is $25 or 1% of your balance plus new interest and late payment fees, whichever is greater. Any amount that’s already past due is also added to your monthly minimum payment.

Other credit card companies have similar minimum payment calculations.

With a Citi credit card, like the Citi® Diamond Preferred® Card, Citi Premier® Card, or Citi® Double Cash Card, your minimum payment is equal to the full amount if your balance is under $41. If your balance is higher, you’ll pay the greater of $41 or 1% of your balance plus interest and late fees. That’s in addition to any overlimit or past due amounts you may also owe.

Feeling lost? We’ll break it down below.

How to calculate your own minimum payment

You can use your credit card issuer’s terms to estimate your minimum payment. You’ll need the following information from your card agreement:

• Average daily balance

• Your card’s APR

• The minimum payment calculation

Example: Let’s say you have a $1,000 balance on a card with a 25% APR and no past due or late payments. You only paid the minimum payment last month, which left you with a $1,000 balance. Since then, you haven’t spent anything else — giving you an average daily balance of $1,000. That’s the amount that has accrued interest this month.

According to your card agreement, your issuer calculates the minimum payment as 1% plus any interest or fees owed.

Take these steps to calculate how much interest you owe:

• Step 1: Find your daily interest rate. Interest on credit cards typically compounds daily. Your card’s 25% APR means you’ll accrue 0.0685% interest daily.

• Step 2: Find the amount of interest accrued each day. Your 0.0685% daily interest multiplied by the $1,000 average balance means you’ll accrue about $00.685 in interest each day.

• Step 3: Find out how much you owe in total interest for the statement period. Assuming 30 days in a month, you’ll owe about $20.55 in total interest.

• Step 4: Calculate your minimum payment. In this case, you’ll pay 1% of your total $1,000 balance, or $10.

• Step 5: Add the 1% average daily balance to your interest owed: $10+$20.55.

• Step 6: In total, your minimum payment for this month is about $30.55.

Just remember, this is an estimate. There are a different number of days in each month, and your card’s actual average daily balance can vary from the total balance if you spend throughout the month.

For the most accurate minimum payment, look for the amount included on your credit card monthly statement. This payment will be clearly listed toward the very top of your monthly statement.

Minimum payment warnings

Thanks to the Credit CARD Act of 2009 — which secured a lot of consumer protections for cardholders — credit card companies must disclose information about minimum payments on monthly credit card statements.

These disclosures, or "minimum payment warnings," have pretty standard phrasing. They outline how long it will take you to pay down your current balance with only the minimum payment and how much you’ll pay in full. They also include a comparison of how much you’ll save and your monthly payment required to pay down your balance over a standard three-year period.

This is important to know because it can illustrate just how much more minimum payments can cost you. It can be a common misconception to believe that paying the minimum payment can be a good way to use your credit card — or even preferable to paying your balance in full. But warnings like this on your statement can help you clearly see how much more time and interest you’ll put toward your card balance with a lower monthly payment.

See an example below of what this warning may look like within your monthly statement.

What happens if I only pay the minimum payment on a credit card?

There are a few ways minimum payments can affect your finances:

You’ll pay more interest

After your due date for the billing cycle passes, the difference remaining between the minimum you paid and your overall balance will start to accrue interest — which can quickly increase your balance. Credit card interest can be especially costly because it generally compounds daily.

Example: Consider the same $1,000 balance and 25% APR from the example above. If your issuer continues to calculate minimum payments as 1% of your total balance plus new interest earned, you’ll pay more than $1,400 in total interest before you pay it in full — on top of the $1,000 balance you started with.

You can reduce this cost by paying more than the minimum. Even if you can’t pay the full amount, whatever you can contribute over the minimum will help you lower interest charges in the long run.

You’ll take longer to pay off debt

All of that extra interest also means that your monthly payments won’t go as far, so you’ll take longer to pay off your debt.

Example: Say you continue to pay only the minimum payment (1% of your principal plus interest earned) on your card with a $1,000 starting balance and 25% APR. If you limit your payments to only that amount, it could take you more than a decade — around 10 and a half years — to eliminate the balance in full.

But if you’re able to increase your payments to a flat $100 per month, you can pay off your total balance in just one year with only about $130 in added interest. The more you can put toward your monthly payment, the quicker you can pay off your credit card debt.

You could hurt your credit score

Paying only the minimum payment won’t automatically have a negative effect on your score. However, a higher credit card balance will increase your credit utilization ratio — and that could lower your credit score.

Your credit utilization ratio or rate represents how much of your total available credit you are using. By not paying down your balances, you risk using up a large amount of your available credit, increasing your utilization rate. Lenders and creditors prefer a lower credit utilization ratio (ideally below 30%).

This credit scoring factor is also the second most influential in your FICO credit score behind payment history. Your credit utilization ratio accounts for up to 30% of your credit score.

Example: Maybe you’re currently revolving a $1,000 balance on a card with a $2,000 credit limit, and you’re utilizing 50% of your available credit — which could hold you back from a great credit score, depending on the other details in your credit history.

Best practices for credit card payments

Credit cards don’t have to cost you. When you pay your balance in full, you can reap the benefits of credit cards (like cash back or travel points, annual benefits, and more) without taking on high-interest debt. Follow these tips to strategize your credit card payments without adding interest.

• Only charge to your card what you can afford to pay off each month so you can avoid interest payments altogether.

• Whenever you’re able, pay your statement balance off in full — or at least more than the minimum required payment.

• Evaluate your budget regularly for any unnecessary expenses or extra funds you can put toward existing credit card debt.

• Track when your payment is due or consider setting up automated payments so you don’t pay late. Late payments can incur fees and penalties and cost you more.

Whenever possible, it’s best to pay your credit card bill in full. But if you’re only able to make minimum payments, there are some actions you can take to minimize the long-term impact.

5 ways to protect your finances when making minimum payments

Here are five things to keep in mind when making minimum credit card payments:

1. Always pay by the due date

Paying your credit card bill on time is essential for any cardholder. Timely payments will help you maintain good credit even when you can’t fully pay down your debt. Late payments can result in added fees and even end up on your credit report.

Late payments can also lead to a penalty APR. This increases your interest rate on new purchases (and, in some cases, existing balances) up to the penalty APR stated in your card agreement. Generally, this amount is much higher than your regular variable APR and can last until your issuer determines you’re eligible for review to revert to the regular APR.

2. Keep a low credit utilization ratio

If you need to pay only minimum payments for a period of time, keep an eye on your debt balances and credit utilization.

The lower your debt, the better your credit utilization will be — which is why it’s good to pay more than the minimum whenever you can. When you're only making minimum payments, you risk increasing your credit utilization ratio as interest compounds and your balances go up.

If that high credit utilization results in a lower credit score, it may be more difficult to qualify for personal loans and mortgages, better loan and insurance rates, and more.

Even while making minimum payments, maintaining as low a credit utilization as possible can help keep you in good standing for future loans.

3. Consider a balance transfer

If you carry a large balance and accrue a lot of interest each month, a balance transfer could help you eliminate your debt. Some balance transfer credit cards today offer zero interest for as long as 21 months.

For example, the Chase Freedom Unlimited® offers a generous introductory APR on purchases and balance transfers, in addition to its cash-back benefits. Be careful, though: If you’re not able to pay your balance in full by the time your regular interest rate kicks in, you could end up back where you started.

Some issuers allow you to check for prequalification to get a better idea of your approval chances. When you apply for a new card, the hard inquiry made on your credit report can temporarily ding your credit score. To avoid multiple applications — and multiple hard inquiries — within a short timeframe, it can be smart to see if you prequalify before applying.

4. Prioritize extra payments when you can

Even if you can only afford them occasionally, any extra payments you can make toward your balance will help reduce the cost.

Maybe you receive a one-time bonus at work or a cash birthday gift. Or you cut out a recurring monthly payment and have that extra money to put toward your debt. Anytime you’re able to make extra payments, you can lower the amount of accrued interest you’ll have to pay.

5. Understand your credit score and credit report

As a cardholder, you’ll benefit from knowing your credit score and the information on your credit report as you pay down your debt balance.

You can view your free credit score through your bank or credit card company. Look for information on your online account or monthly statement.

As for your credit report, you’re entitled to free reports from each of the three major credit bureaus — Experian, Equifax, and TransUnion. Through December 2023, you’re entitled to one free report from each of the three bureaus weekly, which you can request via AnnualCreditReport.com.

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