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+1-802-778-9005Paying off more than the minimum payment helps you clear your credit card debt faster, save more on interest, and improve your creditworthiness.
Paying out more than the minimum amount helps you close your account faster and pay less toward the interest amount as you pay your balance in fewer billing cycles.
Paying more than minimum decreases your credit card balance and increases your credit utilization ratio, which can improve your credit score.
Paying only minimum payments can save you from fees and penalties, but you still carry a balance on your card, which accumulates interest.
The minimum payment of your credit card is the lowest amount you have to pay every month to keep your account in good standing.
A credit card minimum payment is the smallest amount due each month of the billing cycle. Paying the minimum amount helps to prevent fines and penalties, but you still carry a balance on your card, which accumulates interest.
Making at least the minimum payment on your credit cards every billing cycle ensures that you do not incur late fees, penalty APRs, or derogatory marks on your credit report. Paying it will avoid late fees and penalty APRs but will not save you from interest payments. The interest on the balance can add up quickly and make paying off your credit card debt much more difficult.
Here is the formula for calculating the minimum payment amount:
| Minimum Payment Formula: Percentage of Balance + Fees |
The minimum payment calculations vary from bank to bank. Typically, your minimum payment is the higher percentage of your balance (1% or 3%) or a fixed minimum payment (such as $25 or $35).
A minimum payment is just what it sounds like. It is the very minimum you are contractually required to pay for each billing cycle. If you do not pay at least the minimum by the due date, you may be charged a late fee and penalty APR (annual percentage rate). If you do not pay the minimum within 30 days, your account may be marked late, and your credit score may suffer as a result.
Here are two popular methods of calculating minimum payment:
At a flat rate, you pay a percentage of your total statement balance plus interest of 1% to 3%. Let’s say your total balance is $1000, and interest charges are 2%. Then, the minimum payment would be $20.
At percentage plus interest fee, you may have to pay the smaller payment of your statement balance and the interest and fee accrued during the statement period.
Suppose you have a credit card balance of $1000, and you have to pay 1% of interest, which is $10, plus $30 in interest charges and a late fee of $5. Then, the minimum payment would be $45.
Suppose you carry 2 credit cards, and the balance of both cards is $5,000 with an APR of 20%.
If your minimum payment is calculated as 2% of the balance, here’s how it plays out:
| Scenario | Monthly Payment | Time to Pay Off | Total Interest Paid | Total Cost |
| Paying Minimum | $100 | Over 20 Years | $12,000+ | $17,000 |
| Paying Extra | $200 | 3 Years | $1800 | $6,800 |
| Did You Know? The average credit card interest rate in the U.S. is around 20.09% as of 2024. At this rate, even small balances can balloon quickly if you stick to minimum payments. |
Paying more than the minimum amount can be helpful in many ways; here are some of the reasons why it matters:
If you intend to buy a home or make another significant credit purchase in the near future, you may need to pay off existing debts to be eligible for a loan or a competitive interest rate.
Making minimum payments will not reduce big credit card amounts quickly enough to help you be approved for a mortgage. Raise your payments to pay off credit card bills and reduce your credit utilization ratio before applying for a significant loan.
The amount of credit available to you is determined by the credit card provider. If your amount is gradually lowering due to merely making minimal payments, it will be several months (or years) before you may use your credit cards again.
Increasing your monthly payment allows you to pay off your loan more rapidly, freeing up available credit. If you have exhausted all of your available credit, you will no longer have credit to use in the event of an emergency.
Even if you don’t make any extra purchases, making only minimum payments will take longer to pay off your credit card balance. Credit card providers often calculate your interest using an average daily balance and a compounding interest algorithm.
That is, your amount increases every day due to interest charges from the previous day, and you wind up paying interest on interest.
The minimum payment is usually determined as a percentage of your total balance. Fees, interest, and past-due sums may also be considered in this calculation.
When paying the minimum, a larger amount of the payment is allocated to interest charges rather than the main balance (what you originally paid). Making a greater monthly payment contributes more money to the main balance, which is used to calculate interest.
Making more than the minimum payment on your card improves your credit utilization ratio, which is a major component in evaluating your credit score. Credit utilization is a percentage-based comparison of your credit card balances to the amount of available credit. It is the second largest contributor to your credit score, accounting for 30% of its calculation.
Most credit experts recommend keeping credit utilization under 30% for a high credit score, but this can be difficult to attain or maintain if you simply make minimal payments.
When you pay more than the minimum payment necessary on your credit card, you save time, money, and hassle, even if the increase in payments hurts at first. Paying extra on your credit card balances reduces the amount of interest paid on the borrowed amount, allowing you to pay off your debt sooner. As an added bonus, your credit score is likely to rise, and you will have more credit accessible.
Even increasing your minimum payment by a tiny amount can drastically reduce the time it takes to pay off your balance and save you a lot of money in interest. Using one or many debt repayment options could speed your credit card pay-off efforts by allowing you to allocate more of your money.
Here is the checklist you should always keep in mind while escaping the minimum payment trap:
Smart Strategies that can help you pay more than the minimum amount:
The minimum amount is the smallest amount of your credit card bill, which you must pay to avoid penalties and fees and remain in good standing with your credit card issuer.
If you make only the minimum payment of your credit card bill, then it will take a long time to pay your complete debt. However, if you make only the minimum payment, then you don’t have to pay any fines or penalties. However, you have to pay the interest charges on the total balance of your credit card.
