Credit card payoff: what paying only the minimum really costs
Credit card debt is one of the most expensive ways to borrow. When you do not pay the statement balance in full, the rest carries over at the card’s APR, often above 20% a year. Paying only the minimum keeps the account current, but it can stretch the debt over many years.
Why the minimum takes so long
The minimum is usually a small percentage of the balance with a dollar floor. On a $5,000 balance at 24% APR (2% a month) with a 3% minimum, the first payment is $150, but $97 of the next month’s charges is interest. As the balance falls, so does the minimum, and the payoff drags on until the floor kicks in.
Three ways out
| Option | Upside | Watch out for |
|---|---|---|
| Fixed payment above the minimum | Much shorter payoff | Stop adding new charges |
| Installment plan or personal loan | Known payment and end date | Compare the rate and fees |
| Balance transfer to a lower rate | Lower or zero interest for a while | Transfer fee and the rate after the promo |
What your statement tells you
U.S. card statements include a minimum payment warning showing how long payoff would take with minimum payments only, and how much you would pay to finish in about three years. This calculator does the same math with your own numbers and lets you compare a fixed payment and an installment plan side by side.
How to use it
Take the balance, the purchase APR and the minimum payment rule from your statement. Try a fixed payment that fits your budget and the rate of any plan or loan you are offered. To organize several debts at once, use the debt payoff plan.