What Is a Minimum Payment?

What Is a Minimum Payment?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A minimum payment is the smallest amount of money that you are required to pay on your credit card bill each month. It’s determined by your card issuer, and is usually a fixed amount or a percentage of your total balance, plus any fees or interest charges. Paying only the minimum amount allows you to maintain your account in good standing, avoid late fees and continue using your credit card. However, it may take you longer to pay off your balance and you could end up paying more in interest over time.

Related Questions

1. How is the minimum payment calculated?

Calculating the minimum payment varies from issuer to issuer. Generally, it’s either a fixed amount (like $25), or a percentage (like 1-3%) of your total balance, whichever is greater. It also includes any past due amounts, late fees, and exceeding limit charges.

2. What happens if I only make the minimum payment?

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If you only make the minimum payment, you’ll avoid late charges and your account will remain in good standing. However, your remaining balance will accrue interest, and it may take you longer to pay off your debt.

3. Can making minimum payments hurt my credit score?

Making your minimum payments on time won’t hurt your credit score, but it might not help you improve it significantly. High credit utilization can negatively impact your score, and making only minimum payments can lead to high credit use relative to your credit limit.

4. Is it better to pay the minimum payment or nothing at all?

It’s always better to make at least the minimum payment rather than skipping it entirely. Missing a payment can lead to late fees, penalty APRs, and can significantly harm your credit score.

5. What happens if I pay more than the minimum payment?

Paying more than the minimum payment reduces your overall balance faster, thus you’ll pay less in interest over time. This approach can help you clear debt faster and save money.