What Happens If You Only Pay the Minimum Payment on Your Credit Card?

If you’re like most Americans, you probably have a credit card and if you have a balance on your credit card, you might be wondering what happens if you’re only making the mini payment on your credit card?

What Happens If You Only Pay the Minimum Payment On Your Credit Card?

If you only pay the minimum payment on a credit card, your account will remain in good standing, however, it will take you significantly longer to pay off your credit card if you’re only making the minimum payment. That said, if you’re experiencing financial difficulties, it may make sense to only make the minimum payment on your credit card to avoid having the account being reported as having missed payments.

If you’re only making the minimum payment on your credit card, you should keep in mind that it will take you significantly longer to pay down your outstanding debt and you will end up paying a lot more interest by prolonging the repayment process.

Your minimum payment amount will depend on the balance you have on your credit card. Usually, the minimum payment you’re required to pay will be based on a percentage of the balance you owe on your account. Also, there is usually a minimum payment of $25 if you owe more than $25 on your account. Typically, credit card minimum payments are based on 1% to 2% of your outstanding balance.

For example, if you owe $1000 on your credit card, you will most likely be charged a minimum payment of $25, which is roughly 2% of the balance on your credit card. If you owed $2000 on your credit card, your minimum payment would be $40, which is equal to two percent of $2000.

Although making the minimum payment on your credit card account will keep your account in good standing and avoid having late fees placed on your account, it will take you a very long time to pay off your credit card. In fact, many card issuers place warnings on credit card statements, informing consumers that only making the minimum payment significantly increases the amount of time for paying off a credit card.

You can significantly reduce the amount of time it takes you to pay off your credit card. For example, making double the minimum will reduce the amount of time it takes you to pay off your credit by half, significantly reducing the amount of interest you will have to pay on the outstanding balance.

Overall, if you were wondering whether it’s okay to only make the minimum payment on your credit card, now you know that it’s okay. However, if you accumulate too much debt, you could see a decrease in your credit score.

Interest Charges

If you have a balance on your credit card, you should keep in mind that as the balance on your credit card increases so does the amount of interest that you will pay on the balance. If you’re only making the minimum payment on your credit card, you will be only paying off the interest on your credit card and a small portion of the principal balance, causing you to only accumulate more debt if you’re continuing to use your credit card.

If you want to calculate the monthly amount of interest that you’re paying on your credit card, you should divide your interest rate by 12 months and multiply it by the account on your balance.

For example, if you have a $4,500 balance on your credit card and an APR of 18% the calculations will look as follows: 18% / 12 months = 1.5% monthly interest rate. Multiply 1.5% by $4,500 = $67.50. In this example, you will be paying $67.50 in interest every month. So, if your monthly payment is $90, $67.50 would go towards interest and only $22.50 would go towards paying down the principal balance.

So, if you want to reduce the amount of money you pay in interest, you should make more than just your monthly payment. If you have the disposable income to pay off your card, try to pay off as much of the balance as you possibly can to reduce the amount of interest that you owe.

Does Making Only the Minimum Payment On Your Credit Card Hurt Your Credit Score?

No, merely making only the minimum payment on your credit card will not hurt your credit score. However, if the balance on your credit card continues to grow since you’re only making the minimum payment, the increase in balance can lower your credit score.

A climbing credit card balance will lower your credit score because your credit utilization accounts for 30% of your credit score, so the greater your balance, the bigger the drop in your credit score. As a rule of thumb, you should only use up to 10% of your available credit and never exceed 30% usage.

That said, if you have experienced a drop in your credit score because of using too much of your credit limit on a credit card account, the solution to increasing your credit score is simple: pay down your credit card, reducing your credit utilization below 30% of your credit limit. For example, if you have a credit card with a credit limit of $1,000, you should keep your credit usage below $300 for the best results.

That said, if you have a high credit balance, making the minimum payment is still a good idea. This is so because it keeps your account in good standing and prevents you from paying late fees for missing the payment. That said, you should not make the minimum payment forever, you should try to make larger payments to pay down your outstanding debt.

How is the Minimum Payment On Your Credit Card Calculated?

Your minimum payment is usually calculated by multiplying your balance by 1% to 2%, also there is a floor or minimum payment that typically applies. Minimum payments usually start at $25 or $35, however, if your balance is lower than this amount, your balance will be your minimum payment. For example, if you only charged $14 on your credit card, your minimum payment would be $14. However, if you charged $200, your minimum payment would be $25 even though 2% of $200 is $4. That said, if you have a large balance, such as $3,500, your minimum payment would be 1% to 2% of that amount, brining your minimum payment anywhere from $35 to $75, depending on your card issuer.

What Happens When You Only Make the Minimum Payment?

Making only the minimum payment will keep your credit card in good standing, however, if you have a large balance on your credit card, it will take you a very long time to pay it off. You should make as large of payment as you can afford to make to reduce the balance on your credit card.

Does Paying More Than the Minimum Payment Help Your Credit?

Making more than the minimum payment can help your credit because it reduces your credit utilization. Credit utilization refers to the amount of your available credit you’re using. Typically, the less of your available credit you use, the better your credit score will be. So, if you pay more than just the minimum payment, significantly reducing your credit balance, you will notice a boost in your credit score. Of course, this will be different from one person to another, depending on the other information that’s on your credit report.

Frequently Asked Questions (FAQs)

1. Can you only make the minimum payment on a credit card?

Yes, you can only make the minimum payment on your credit card and your account will remain in good standing. However, if you have a large balance on your credit card, it may take many years to pay down your balance if you’re only making the minimum payment. To decrease a large balance, you should aim to double your minimum payment, this will help you pay down your credit card twice as fast.

2. What is the minimum payment on a $5000 credit card?

The minimum payment on a $5000 credit card ranges from $50 to $100, depending on how your card issuer calculates your minimum payment.

3. Does making only the minimum payment hurt your credit?

Making only the minimum payment will not hurt your credit score. However, having a large balance on your credit card will lower your credit score. If you only pay the minimum payment and continue to rack up debt, your credit score will suffer. However, merely making the minimum payment on a credit card will not hurt your credit score.

4. Will the bank cancel your credit card if you only make the minimum payment?

It’s unlikely that a bank will cancel your credit card for merely making the minimum payment. However, if you accumulate too much debt on your credit card and can’t pay it off, the bank may lower your credit limit and close the account. You should always to keep your credit utilization at 10% and never exceed 30% to stay on the safe side.