Minimum Payment
BeginnerA minimum payment is the smallest amount a borrower must pay on a debt, usually a credit card, by the due date to keep the account in good standing and avoid a late fee.
Credit card companies set the minimum payment as a small percentage of the balance, a fixed small amount, or a mix of interest plus a portion of the balance. It is designed to keep the account current, not to clear the debt quickly.
Paying only the minimum is very expensive over time. Suppose you owe 3,000 on a card charging 20% a year and pay only 2% of the balance each month, with a floor of 25. Most of each early payment goes on interest, and it would take about 31 years to clear the debt, with more than 10,000 paid in interest. Paying a fixed 100 a month instead would clear the same debt in about three and a half years, with roughly 1,200 in interest.
Missing even the minimum payment usually triggers a late fee, may raise the interest rate and can harm your credit score.
The minimum payment is a floor, not a target. Paying as much above it as possible, ideally the full balance, is the most effective way to avoid interest and get out of debt.
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