Paying Less Than the Minimum on Credit Cards

When managing credit card debt, many people focus on just getting by. But what happens if you pay less than the minimum on credit cards? Spoiler: it’s not a good financial move and can lead to serious long-term consequences. Keep reading to discover what happens when you don’t meet your minimum payments and how to get back on track. Keep reading to see how you can get personalized offers from our trusted partners through MoneyLion!

Table of contents

• What is the minimum payment on a credit card?

• What happens when you pay less than the minimum on credit cards

• Long-term consequences of paying less than the minimum amount due on your bills

• What to do if you can’t meet your minimum payment

What is the minimum payment on a credit card?

The minimum payment is the smallest amount you must pay on your credit card balance each month. Credit card issuers calculate the minimum payment as a percentage of your total balance, typically around 1-2% or a flat fee if the balance is small. For example, if you owe $1,000 and your minimum payment is 2%, you must pay $20 that month to avoid penalties.

To calculate the minimum credit card payment, multiply your balance by the required percentage or use the flat minimum, depending on your card’s terms. Always check the terms to ensure you understand how your issuer calculates it.

What happens when you pay less than the minimum on credit cards

If you start paying less than the minimum on credit cards, several things can happen and none are pleasant.

You could face fees

Failing to make at least the minimum payment results in late fees, which can be as high as $41 if you miss the payment deadline by more than 30 days. Every missed payment increases your balance, making it harder to get out of debt.

Your credit score could drop

Payment history is one of the critical credit card rules to follow since it makes up 35% of your credit score. A late or missed payment can negatively affect your score, reducing your chances of securing a loan or another credit card.

Your balance will likely go up

Unpaid minimum payments add to your balance, increasing the total amount of interest you owe. Each month that passes, the balance continues to grow, making it harder to catch up.

Long-term consequences of paying less than the minimum amount due on your bills

Missing several payments in a row can lead to a downward spiral of financial hardship. As fees accumulate, your balance grows and your credit score plummets, making it harder to qualify for future credit or loans. Even if you qualify, expect to pay higher interest rates due to your lower credit score. Continuous struggles to meet your minimum payments can signal to lenders that you have ongoing financial difficulties.

What to do if you can’t meet your minimum payment

If you can’t meet your minimum payment, there are several strategies you can consider:

Contact your credit issuer

Reach out to your credit card company and explain your situation. Many companies are willing to work out a payment plan to help you catch up. Remember, you’re talking to a person, not just a company and a little courtesy can go a long way.

Ask for extra hours or an advance at work

Increasing your income temporarily can help you cover the minimum credit card payment. Ask your employer for extra hours or a salary advance. Just be cautious – while this provides temporary relief, it could strain your finances in the following months.

Consider debt settlement

Debt settlement involves negotiating with your creditors to pay off a portion of your debt. It’s a strategy that can reduce the total amount owed but could negatively impact your credit score in the short term.

Seek out a credit counselor

A credit counselor can help you navigate debt settlement, consolidation or other strategies to get back on track. They can provide professional advice tailored to your specific financial situation.

Consider debt consolidation

Debt consolidation allows you to roll multiple high-interest debts into a single loan with a lower interest rate. This can help simplify your payments and reduce your monthly obligations, making it easier to meet the minimum on your credit cards.

MoneyLion offers a range of financial tools to help you consolidate debt or find a personal loan that works for you.

Consider 0% balance transfer credit cards

A 0% balance transfer card can help you reduce the interest you’re paying on existing balances. You transfer your balance to a new card that offers a 0% interest rate for a promotional period (usually 12-18 months), allowing you to pay off your debt faster without interest piling up. Be aware of transfer fees and ensure you can pay off the balance before the promo period ends to avoid higher interest rates later.

Declare bankruptcy

If your debt is insurmountable, bankruptcy may be a final option. Declaring bankruptcy will wipe out most of your debt but will severely impact your credit score for years. It’s a drastic measure that should only be considered after exhausting all other options.

Cut your spending and budget your money

Credit card debt often accumulates due to unchecked spending. Review your credit card statements and subscriptions to see where you can cut back. Cancel unnecessary services and consider shopping around for better deals on essentials like groceries and utilities. While cutting spending provides some relief, the long-term solution is to maintain a budget that aligns with your financial goals.

Find a side hustle

Taking on a side hustle can help you earn extra income to meet your credit card obligations. Whether freelancing, selling products online or driving for a ride-share service, extra income can help you avoid penalties and maintain a healthier financial future. 

Staying on Top of Your Minimum Payments

Paying less than the minimum on credit cards can lead to financial trouble. Fees, interest and a lower credit score can make it hard to recover, but taking proactive steps like budgeting, seeking a side hustle and negotiating with creditors can help you regain control. Always aim to pay more than the minimum when possible and seek additional resources if you struggle to meet your obligations.

FAQs

Can you pay less than the minimum payment on a credit card?

While you technically can, it’s not recommended as it leads to late fees, higher interest and a drop in your credit score.

What is a reason to pay more than the minimum payment due on your credit statement each month?

Paying more helps you reduce your debt faster and avoid additional interest charges.

Why is it more difficult to get out of debt when only paying the minimum payment?

Minimum payments primarily cover interest, so your balance doesn’t decrease quickly, making it harder to get out of debt.

Why do you think credit card companies don’t mind if you just make the minimum monthly payments?

Credit card companies profit from interest on unpaid balances, so making only the minimum keeps you in debt longer, allowing them to collect more interest.

Should I pay off my credit card in full?

Yes, paying off your card fully avoids interest charges and helps maintain a healthy credit score.