How Minimum Payments Are Calculated
Your issuer sets the formula and prints it in the cardholder agreement. The common versions are:
- 1% of the balance plus interest and fees. The most common formula at large US banks. The 1% is the only part that actually reduces what you owe.
- A flat 2% or 3% of the balance. Some issuers and many store cards. At high APRs a flat 2% can barely cover the interest, which is why some balances seem frozen.
- A floor, usually $25 to $40. If the formula produces less than the floor, you pay the floor. If you owe less than the floor, you pay the whole balance.
Whatever the formula, the minimum is recalculated from your new, slightly smaller balance each month. That is the trap: the payment shrinks with the balance, so the balance falls more slowly every month.
Why Paying the Minimum Keeps Your Balance Flat
Take the default example above: $5,000 at 24.99% APR. The first month's interest is about $104, and the 1% plus interest minimum is about $154. So of the $154 you send, $104 is interest and only $50 touches the balance. Next month the balance is $4,950, the interest is about $103 and the minimum drops to about $152. You keep paying, the number on the statement barely moves, and the payoff stretches to nearly 20 years.
Fix the payment instead of letting it shrink. $200 a month, every month, clears the same balance in 3 years and saves roughly $7,100 in interest. If your statement balance has been stuck for a while, read why your credit card balance is not going down for the other five reasons it happens, and how to lower your credit card interest rate with a five-minute phone call.
Multiple Cards? Pick an Order
This calculator handles one card at a time. With two or more, pay the minimum on all of them and send every extra dollar to one target card. Highest APR first saves the most interest; smallest balance first gives you a paid-off card soonest. Run your real cards through the debt avalanche calculator or the debt snowball calculator to see the difference on your numbers.