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Understanding Credit Card Minimum Payments

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding your credit card payments. For any mortgage-related needs, feel free to call us at 213-732-3074.

How Is a Credit Card Minimum Payment Calculated?

Your credit card’s minimum payment is typically calculated as either a flat percentage of your card balance or a percentage plus the cost of interest and fees. Depending on your card issuer and agreement, either method might be used. If your card issuer charges a flat percentage, your minimum payment could range from 2% to 4% of your total balance. Alternatively, you might pay a lower flat percentage, usually around 1%, plus applicable interest and fees.

In some cases, such as when your account balance is under a certain amount, you may be charged a fixed amount, like $25 or $35. If your total balance is smaller than the fixed minimum payment amount, you will be asked to pay your full balance.

How Do I Know How Much My Minimum Payment Is?

The easiest ways to find your minimum payment each month are to check your mailed billing statement or log in to your credit card account online. You can also contact your bank over the phone to ask about your minimum payment for the month. Credit card issuers are legally required to provide a minimum payment warning on each billing statement, which tells you the total time it will take to pay off your balance and how much interest you’ll pay by only making the minimum payments each month.

Check your statement carefully each month to find out your current minimum payment. This amount can change month to month based on your balance and can also include late payment fees and past missed payments.

How Does Making Only the Minimum Payment Affect My Credit?

Paying at least the minimum due each month by the due date is key to keeping your payment history intact. Payment history is the most important factor in your credit score, and even one 30-day late payment can negatively impact your scores. However, paying only the minimum due each month can potentially have a negative impact on your score, depending on how much revolving debt you have. A high balance could lead to a high credit utilization ratio, which calculates your total balances as a percentage of your total available credit. A credit utilization rate above 30% can drive down your credit scores.

Paying more than the minimum ensures your balances are paid off in a timely manner. For example, it would take five years to pay off a $2,000 balance on a credit card with 20% APR making only the minimum monthly payment of $54, and you’d pay over $1,100 in interest. That’s also assuming you don’t make any new purchases.

How much you can ultimately pay beyond your minimum payment depends on your individual financial situation, but you’ll do the most to avoid interest charges by paying off your full balance before the end of the grace period.

The Bottom Line

Understanding what goes into calculating your minimum payment is crucial for managing your credit card well. Aim to pay more than the minimum due to save money on interest and maintain good credit. If you’re looking to pay off your credit cards or want to learn more about your current credit card debt, check your credit report and monitor your credit. For any mortgage-related needs, call O1ne Mortgage at 213-732-3074.

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