Question 1

How is the minimum payment calculated?

Accepted Answer

Most credit card issuers calculate the minimum payment as a percentage of your outstanding balance (typically 1-3%) or a fixed dollar amount ($25-35), whichever is greater. Some issuers add any past-due amounts, over-limit fees, or the full interest charge to the minimum. Check your card agreement for the exact formula your issuer uses.

Question 2

Why does paying the minimum take so long?

Accepted Answer

As your balance decreases, so does the minimum payment amount. This means each month you pay less, and a larger portion goes to interest rather than principal. At 22% APR, the first minimum payment on a $5,000 balance might be $100, but only $4 goes to principal -- the other $96 is interest. As the balance slowly drops, payments get smaller and smaller, stretching the payoff to decades.

Question 3

What happens if I miss a minimum payment?

Accepted Answer

Missing a minimum payment triggers a late fee (up to $41), may increase your APR to a penalty rate (often 29.99%), can be reported to credit bureaus after 30 days (damaging your credit score), and may eliminate any promotional rate you have. Most issuers will waive a first-time late fee if you call and ask, but the penalty APR may still apply.

Question 4

How much should I pay above the minimum?

Accepted Answer

Pay as much as you can comfortably afford. Even an extra $50-100 per month makes an enormous difference. On a $5,000 balance at 22.99% APR, the minimum-only payoff takes about 27 years and costs $8,000+ in interest. Paying a fixed $200 per month cuts that to about 33 months and $1,600 in interest -- saving over $6,400 and 24 years.

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