Minimum Monthly Payment

Minimum Monthly Payment: What It Means for Credit Cards

What is the minimum monthly payment?

The minimum monthly payment is the smallest amount a cardholder must pay each month on a revolving credit account to remain in good standing and avoid late fees. It’s typically calculated as a small percentage of the outstanding balance (often around 1%–3%) or a flat fee plus a percentage.

Why it matters

• Paying only the minimum prolongs repayment and increases the total interest paid.
• Making at least the minimum on time preserves your payment history, which helps maintain your credit standing.
• Paying the full statement balance each month avoids interest charges and maximizes the benefit of any rewards or cash-back offers.

How minimum payments are shown

Credit card statements list:
– Itemized transactions for the period
– Interest and fees charged
– Previous balance and ending balance
– The minimum monthly payment required to keep the account current

For many cardholders, minimum payments are a small, rolling amount tied to the current balance; you can continue using the account as long as you meet the issuer’s payment requirements.

Typical amounts

As an example, if the minimum payment rate is 2% and the average balance is $6,200, the minimum payment would be about $124. Actual rates and calculations vary by issuer and account.

Revolving vs. non-revolving credit

• Revolving credit (credit cards): Allows ongoing borrowing up to a limit, with variable balances and a monthly minimum payment. Accounts can remain open indefinitely if kept in good standing.
• Non-revolving credit (installment loans): Provides a one-time lump sum (e.g., auto or mortgage) with a fixed repayment schedule and set monthly payments until the loan is paid off.

Practical tips to reduce interest and pay off debt faster

• Aim to pay the full statement balance each month to avoid interest.
• If you can’t pay in full, pay more than the minimum whenever possible—doing so can significantly reduce interest costs (estimates vary by rate, but increasing payments above the minimum can save roughly 10%–29% per year in interest depending on APR and balances).
• Prioritize higher-interest balances first or consider balance-transfer offers with low introductory rates if appropriate.
• Review your monthly statement to verify charges, interest, and the exact minimum due date.

Bottom line

The minimum monthly payment keeps your account current but is not the same as the most cost-effective payment strategy. Paying only the minimum extends debt and raises interest costs; paying the full balance each month is the best way to avoid interest and build healthier credit.