MoneyLife

What Is a Minimum Payment on a Credit Card?

By Jacinta Sherris
what is a minimum payment

Are you wondering, “What is a minimum payment?” You’re not alone. A lot of people ask this question because the language used when talking about credit cards can be tricky. It’s easy to mistake the difference between a statement balance vs minimum payment. 

When it comes to having to pay your credit card balance, it helps to know the terms, conditions, and language used to talk about credit cards. You can use this guide as a starting point to answering the question, “What is a minimum payment?” and more! 

How does a minimum payment work?

Simply put, your minimum payment is the smallest amount of credit that your credit card issuer will allow you to pay towards your credit card balance. It may seem tempting to only cover the total minimum payment due each month, but minimum payments are really designed to keep you in debt longer and hike up the interest you accrue. 

In some cases, by only paying your monthly payment, you can also put your credit score at risk. If you want to get out of debt or save money, it’s best to pay more than just the minimum payment each month. 

Let’s take a look at some of the most common questions about minimum payments! 

How is a minimum payment calculated?

Your minimum payment is calculated as a small percentage of your total credit card balance or at fixed dollar value — whichever is greater. If your credit card balance is $1,000 or more, your minimum payment will likely be around 2% of your total balance. On the other hand, if you owe less money, you’ll probably be charged a flat fee around $20. 

Can you request a lower minimum payment?

If you have a good credit score, it might be worthwhile to ask your credit card company for a lower interest rate. In turn, this would reduce your minimum payment amount. 

However, if your credit score isn’t great, your best bet would be to pay off as much of your credit card balance as possible. High minimum payments are often a byproduct of excessive credit card usage. 

How much more than the minimum payment should I pay?

Ideally, you should pay off your entire credit card balance by the end of each month. This is the best way to avoid late fees, high-interest charges, and a drop in your credit score. However, this approach isn’t viable for everyone, especially for those struggling with credit card debt. 

Another option is to pay off as much as you can afford at the moment. Whether it’s double your minimum payment or only $10 extra, paying more than the minimum payment will help you reduce your balance faster and save on interest. 

Does paying the minimum hurt credit score?

Making your monthly payments on time will never hurt your credit score. As long as you don’t fall behind on your total minimum payment due dates, you should be fine. 

That said, paying only the minimum payment means it will take you longer to reduce your total balance. This, in turn, means that it will take you longer to improve your credit score.

The worst thing you could do is miss a payment or pay less than your minimum each month. You’ll run the risk of overdrafting your account, incurring fees, and hurting your credit score in the long run. 

If you’re struggling to meet your minimum monthly payment requirements, try exploring the many low-cost financing solutions from MoneyLion. You could access up to $250 as a cash advance at 0% APR with Instacash or break down up to $600 in one-off purchases into several installments with Overtime

Plus, MoneyLion also offers Credit Builder loans that offer manageable installments over twelve months. These loans are designed to help you boost your credit score. You’ll also have access to budgeting tools and credit tracking assistance.  

How long will it take you to pay off your credit card if you only make the minimum payment?

The exact time frame will depend on your outstanding credit card balance and your current interest rate. However, let’s take a look at how long it could take you to pay off $2,000 in credit card debt by only making the minimum payment. 

Assuming you don’t rack up further charges on your credit card, an outstanding balance of $2,000 at an 18% annual rate, with a minimum payment of 2% of the balance, would take over 30 years to pay off and you’d end up paying an additional $4,931 in interest. As you can see, it’s much better to pay more than your monthly payment, and the sooner you pay it off, the better. 

Why has my minimum payment doubled?

Your total minimum payment due may be increased if you’re continuously racking up new credit card charges. It can also be increased by late-payment penalty fees and additional interest. 

Things to consider with minimum payments 

Here are the most important takeaways to remember regarding minimum payments! 

Longer pay-off times

Minimum payments are designed to keep you in debt for longer while extracting as much interest out of you as possible over time. In order to save more money in the long run, you’ll want to pay more than your minimum payments. 

Potentially damaging to your credit score 

With minimum payments, you will spend a lot longer paying off your debt than if you paid more than your monthly payments each month. This will keep both your outstanding balance and your credit utilization rate high. 

High credit utilization rates can hurt your credit score immensely. This is why only paying the minimum payment won’t significantly boost your credit score, even if you pay all of your monthly minimums on time. 

Capable of misleading you into borrowing more

Minimum payments make it seem like your credit card balance is more manageable than it really is. This can lead users to think that they’re financially capable of taking on more debt, which is misleading since the majority of your minimum payment goes towards interest anyway. 

How do I lower my monthly minimum payment?

If you want to lower your monthly minimum payments, you’re going to have to reduce your outstanding balance first. Let’s take a look at some strategies worth considering. 

Start budgeting

If you’re serious about lowering your monthly minimum payment, you’ll have to start budgeting more and spending less. Cutting back on unnecessary expenses and putting more towards your credit card debt will decrease your balance, which will minimize your minimum payments as well. You can use MoneyLion’s RoarMoney banking account to track your spending and improve your budgeting skills. 

Don’t use your card

If your credit card has a high balance, it will yield a high minimum payment, so you’ll want to refrain from incurring any more expenses on that card. It’s best to cut back on your spending as much as possible, and if you do need cash assistance, consider low-cost financing solutions like Instacash or Overtime

Explore ways to bring in more income

When it comes to credit card debt, the more you can pay off now, the better off your finances will be in the long run. This can be an incentive to take on extra hours at work, start a side hustle, or find other ways to bring in more cash. You can explore some ideas here

Get a better interest rate

Sometimes, it might be possible to reduce your monthly minimum payment by securing a lower interest rate. Contact your credit card issuer and ask if this is an option. If it is, make sure you get everything in writing. Another approach is to pay off your balance with a more affordable lending product. In both scenarios, you’ll need to have a good credit score to either secure a lower interest rate or an affordable lending product.

Boost your credit score with an affordable credit builder loan

By paying the minimum payment on your credit card each month, you won’t get out of debt anytime soon. In fact, you’ll end up paying even more in the long run and putting your credit score at risk in the process. If you’re at a place in life where you want to focus on boosting your credit score, consider a Credit Builder Plus membership from MoneyLion!

This membership comes with an affordable loan of up to $1,000 and there’s no credit check involved. Plus, you’ll have access to smart banking tools and 0% APR cash advances to help you take charge of your finances!

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