How to calculate your minimum credit card payment

Credit cards may offer convenience and flexibility in managing your finances, but to maintain good credit, it’s important to understand what to expect on your credit card bill each month. A crucial element you’ll find on your bill is the minimum credit card payment.

A minimum payment is the bare minimum you’re obligated to pay each billing cycle to avoid late fees and penalties. Paying this amount on time each month keeps your account in good standing. The minimum payment is usually a percentage of your total balance, but not always.

In this article, we’ll share how credit card issuers calculate your minimum payment, what happens if you don’t pay the minimum and some tips for tackling your credit card debt.

How to find your minimum payment for each billing period

To calculate your minimum credit card payment, refer to your monthly statement or your cardmember terms and conditions. The calculation can vary depending on the issuer and your outstanding balance.

All credit card issuers are required to provide clear information about how they calculate minimum payments on your monthly statement. Here are main methods:

Percentage method: Some credit card issuers calculate the minimum payment as a percentage of your outstanding balance. This percentage typically falls within the range of 1% to 3% but can vary. For example, if your outstanding balance is $500 and the minimum payment percentage is 2%, your minimum payment would be $10.

Flat fee method: Some issuers set a minimum payment as a fixed amount regardless of your balance. For example, $25, $35 or another predetermined amount.

Interest plus percentage method: In this case, the minimum payment is calculated as the sum of the interest accrued on the outstanding balance for the billing period plus a percentage of the outstanding balance. This method ensures that you cover at least some of the interest charges while making a dent in your principal balance.

How Chase calculates your minimum payment

In most cases, Chase calculates your minimum payment as a flat fee of $40 or 1% of your statement balance, plus any interest and late fees since the last billing cycle — whichever is greater. If your balance is less than $40, your minimum payment is the total of your balance.

Be sure to refer to your cardmember terms and conditions or your monthly statement to find the calculation used for your Chase credit card.

What happens when you only pay the minimum on your credit card bill?

If you only pay the minimum payment on your credit card bill month-after-month, you may face several of these challenges:

• You’ll accrue interest charges: If you pay only the minimum, this will likely result in you accruing more interest on your outstanding balance. This means it will take longer to pay off your debt, and you’ll end up paying more in interest over time.
• You’ll extend your repayment period: The longer you only make minimum payments, the longer it will take to pay off your credit card debt. This could take months or years, depending on your balance and interest rate.
• Your credit score could be impacted: While making the minimum payment helps you avoid late fees and penalties, this decision may still negatively affect your credit score over time. It may signal to lenders you are struggling to manage your debt. It may also affect your credit utilization ratio.
• Risk of default: If you allow your total balance to add up over time because you’re only paying the minimum amount, your debt may get so big that you risk defaulting on it. This can lead to legal actions, collections and severe consequences to your credit profile.
• Financial stress: Prolonged credit card debt can cause financial stress and impact your overall well-being. You may find it challenging to reach other financial goals when part of your income goes toward mounting credit card payments every month, of which a noticeable amount comes from the interest that adds up over time if you only pay the minimum payment.

How long it will take to pay off a minimum payment of $X

Figuring out how long it will take to pay off your debt if you just pay the minimum payment depends on several factors — your balance, the card’s interest rate and if you make new charges.

You can use Experian’s credit card payoff calculator to help.

How paying only the minimum payment will affect you and your credit score

To protect your credit score, it’s wise to pay off your balance in full each month. If you only pay the minimum payment each month, here are some ways it could affect you and your credit score:

• Credit utilization ratio can increase: Paying only the minimum means you could end up carrying a significant balance on your card. This can increase your credit utilization ratio, which is the amount of credit you’re using compared to your total credit limit. A high credit utilization ratio can have a negative impact on your credit score. Ideally, you should aim to keep your credit utilization below 30%.
• Credit history could suffer: While it may not have an immediate impact on your credit score, paying the minimum could make it more challenging to manage your credit utilization. This could then make it harder to obtain new credit in the future or get favorable terms when you apply for a credit card.
• Limited progress in reducing debt: Prolonged use of minimum payments can result in higher overall debt, which could weaken your creditworthiness and impact your credit score.

Tips on how to pay-in-full on your credit card debt

Here are some tips that may help you work toward paying off your credit card debt in-full:

• Create a budget: Setting a monthly budget can help you understand your income and expenses. In addition, it can help you see how to best allocate your funds in order to make room for paying off your credit card balance in full.
• Track your spending: Whether you do this online, through an app or via your monthly billing statement sent through the mail, it's important to keep a close eye on your spending habits. Tracking your expenses can help you identify areas where you can cut back and use those newly found dollars toward your credit card bill.
• Set up automatic payments: Many credit card issuers allow you to set up automatic payments for the full balance each month. Provided you have sufficient funds in your linked account, this ensures that you won’t miss a payment and helps you avoid interest charges.
• Prioritize high-interest debt: If you have multiple credit cards with different interest rates, prioritize paying off the card with the highest interest rate first. Tackling the most expensive debt first can help save you money on interest charges in the long run.
• Pay more than the minimum when you can: While paying the minimum is required to avoid late fees, it’s best to pay as much as you can comfortably afford to above the minimum. This will help you pay down your debt faster.
• Put extra income toward your debt: If you receive an unexpected windfall, such as a tax refund, work bonus or birthday gift, consider using a portion of that money toward paying off your credit card debt.
• Stop making purchases with the card: While you’re working to pay off your balance, try to avoid making new charges on the card. This will prevent your balance from getting any bigger.
• Consider a balance transfer: If you have a high-interest credit card, you may want to explore transferring the balance to a card with a lower interest rate, especially if you can find a 0% APR promotional offer. Be aware that balance transfers often come with fees. You’ll want to take those into consideration before you do a transfer.

Paying off credit card debt requires discipline and commitment, but it’s a significant step toward achieving financial stability and improving your credit score.

Bottom line

Understanding what goes into calculating your minimum payment is a big part of being a savvy borrower and managing your credit card well. If you want to get out of debt faster, pay more than the minimum payment each month. If you carry a balance from month-to-month and the debt grows high, it could eventually affect your credit score in a negative way.