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What the minimum payment really costs.

The minimum payment is set so the account stays current while the balance barely moves. As the balance falls, so does the minimum, which is what stretches a few thousand dollars into decades. Put in your statement and see the time and the interest, and what a fixed payment would save.

The purchase rate on your statement.
Your statement or cardholder agreement says which, and what the lowest minimum is.

Why the minimum takes so long

A minimum worked out as a percentage of the balance falls as the balance falls. Each month you pay a little less, so each month a little less comes off, and most of what you pay early on is interest. On 5,000 at about 21 per cent with a 3 per cent minimum, the payment starts near 150 a month and drifts down towards the floor, and the debt lasts many years.

A fixed payment does not shrink. Holding the first minimum steady instead of letting it fall is often the single largest saving available, and it needs no new account.

How this works

Each month the interest is the yearly rate divided by twelve, applied to the balance and rounded to the cent. The payment is the larger of the percentage and the floor, never more than what is owed. It repeats until the balance reaches zero. Real statements usually compound daily on the average balance, which differs from this by a few cents a month, so the result is an estimate. New spending on the card is not included.

Questions people ask

How long does it take to pay off a credit card with minimum payments?

Often many years, because the minimum falls as the balance falls. Put your balance, rate and minimum rule in the calculator to see your own figure.

How much should I pay to clear my card faster?

Any fixed amount above the current minimum helps, because it does not shrink as the balance does. Try the first minimum as a fixed payment: it usually cuts the time and the interest by a large share.

Why is most of my payment going to interest?

Interest is charged on the whole balance each month, so while the balance is large it takes most of a small payment. Only what is left over reduces the debt.

Related

What a payment plan actually costsTurn an instalment offer back into a price and a rate. What your subscriptions costEvery small monthly charge, added up over a year. The trial that bills youFree until the moment it is not.

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