DEFINITION of 'Minimum Payment'

The smallest amount of a credit card bill that a credit card holder must pay each billing cycle. The minimum payment is usually based on one of three things: a flat minimum dollar amount, such as $35; a percentage of your new balance — usually a small percentage, such as 2%; or your interest charges and late fee plus a flat dollar amount, such as $20. However, if your statement balance is smaller than the lowest of these calculations — if your balance is $12, for example — then your minimum payment will be the same as your balance.

BREAKING DOWN 'Minimum Payment'

Read your credit card’s terms and conditions, sometimes called the “cardmember agreement,” “cardholder agreement” or something similar, to see how your card issuer calculates the minimum payment for your card. You are not required to pay more than the minimum payment, but any portion of your balance that you don’t pay will accrue interest unless you have qualified for a 0% APR offer. Also, if you don’t make the minimum payment by the due date, you will usually be charged a late fee.

Making only the minimum payment on your credit card is a good way to stay in debt long term and spend lots of money on interest. For example, if your credit card balance is $5,000, your interest rate is 18%, and your minimum payment is $100, making only the minimum payment means it will take you 472 months, or more than 39 years, to pay off your balance. What’s more, you will pay almost $14,000 in interest. If you commit to putting $500 a month toward your $5,000 balance, however, you will pay it off in 11 months and spend about $460 on interest. The best options, of course, are to pay your balance in full and on time each month or to not use a credit card at all and avoid going into debt altogether.

The minimum payment is also important because it affects how your credit card payments are applied to your balance. Any payment you send in will usually be applied to your minimum payment first, then to either balances with higher APRs first or to balances with lower APRs first. It depends on the terms you agreed to when you applied for the card, which you can also find in your card’s terms and conditions.

  1. Minimum Monthly Payment

    The smallest amount of a credit card bill that a consumer can ...
  2. Minimum Finance Charge

    The least amount of interest you’ll have to pay your credit card ...
  3. Terms And Conditions (Credit Card)

    A formal statement of the rules and guidelines that govern the ...
  4. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  5. Returned Payment Fee

    A charge a credit card company may assess to a customer’s account ...
  6. Balance Chasing

    The gradual lowering of a consumer’s credit limit by a credit ...
Related Articles
  1. Personal Finance

    Why Making Minimum Payments Gets You Nowhere

    Getting out of debt can be difficult, but paying off a minimum balance each month only makes things worse.
  2. Personal Finance

    Everything You Need To Know About Credit Card Rates

    Understanding credit card rates will help you choose the right credit card, and avoid any unpleasant surprises.
  3. Personal Finance

    The Fed's Interest Rate Rise & Your Credit Cards

    The U.S. Federal Reserve recently raised the lending rate from 0% to 0.25% – the first time since 2006. How does that affect your credit card payments?
  4. Personal Finance

    Cut Credit Card Bills By Negotiating a Lower APR

    Reducing the rate charged on your credit card balance is the first step to getting out of debt.
  5. Personal Finance

    7 Factors For Comparing Credit Cards

    It's good to find a credit card that fits your lifestyle, but read the fine print to make sure you're not overpaying for the benefits.
  6. Personal Finance

    Get A Free Ride From Credit Companies

    Find out how to make your credit cards work for you - not against you.
  7. Personal Finance

    3 Easy Ways To Improve Your Credit Score

    A better credit score can improve your financial future. How can you improve your score?
  8. Personal Finance

    How Many Credit Cards Should You Have?

    National stats indicate most consumers have three or more cards - are you one of them?
  9. Personal Finance

    How to Pay Off Credit Card Debt This Year

    When you look at the numbers, debt seems to have become an American way of life.
  1. How is the minimum payment on a credit card calculated?

    Even when minimum payments are low, consumers should still aim to pay off credit card balances every month. Read Answer >>
Trading Center