Understanding how a credit card minimum payment works is important. It can help you manage your monthly budget. It can also help you pay off your credit card debt faster while incurring lower interest charges. In this guide, we provide everything you need to know about a credit card's minimum payment.
A question we hear a lot is how much is a credit card's minimum payment? For example, if you have a $2,000 balance on a card, what will the minimum payment be for that card? The short answer is that for most cards, the minimum payment is generally about 1% of the outstanding balance plus interest and fees.
Not all credit card issuers follow this general rule, however. So let's dig into the details.
Understanding minimum payments is essential to making good credit card choices. You're always better off to pay your balance in full each month, and you'll get the most out of your credit cards with this strategy.
But if you need to use a credit card to finance a larger purchase – or if you've just run up high balances – you'll definitely want to know how your minimum payments are calculated. Understanding this can help you see how long it will take you to pay off your card if you make only the minimum payments.
Until a few years ago, most cards set the minimum payment at about 2% to 2.5% of the outstanding balance. At this level, making just the required minimum payment would cover the interest charges and a very small portion of the outstanding balance. At this rate, it would take years to pay off a balance.
In 2003, the Office of the Comptroller of the Currency issued guidance covering minimum payments. The guidance told lenders to set “minimum payments that will amortize the current balance over a reasonable period of time.”
Unfortunately, the Reserve didn't specifically state what is “reasonable,” and you could still spend years and years in credit card debt by making only the minimum payments.
More recently, the Credit CARD Act of 2009 forced credit card companies to make it obvious to consumers just how long it would take them to pay off their credit cards making only minimum payments. This makes it much easier to see just how making minimum payments will affect you, as the consumer.
Even with all these changes, though, there's no standard way to calculate minimum payments on your credit cards. Minimum payment calculations vary from company to company – and even from card to card (see below).
To understand why this is so important, we need to understand how credit card debt is different than a car, student, or home loan.
Credit Cards vs. Installment Loans
A credit card is considered a revolving line of credit. That simply means that as you pay down your balance, you can use the card again up to the available credit limit. You can continue to use the credit indefinitely, as long as you make the monthly minimum payment and your balance doesn't exceed the card's credit limit.
In contrast, installment loans, such as a car, student, or home loan, cannot be reused. As you pay down the balance on a car loan, for example, you cannot then decided to borrow that money again. The balance of the loan continues to decline until the debt is paid in full. At that time, the account is closed.
Why is this important? It's important because lenders calculate the minimum monthly payment of a credit card differently than they do an installment loan.
With an installment loan, the minimum payment is calculated based on the original loan amount, the interest rate, and the term of the loan. Once set, the minimum monthly payment does not change, even if you pay extra on the loan each month. You can check out our loan calculator to find out the monthly payment of an installment loan.
With a credit card, the monthly payment is recalculated every month based on the outstanding balance. As a result, the minimum payment declines as the credit card balance goes down. It goes up as a credit card balance gets bigger. The recalculating of the minimum payment is important when determining how long it will take you to get out of debt (see below).
How Credit Card Minimum Payments Are Calculated
Credit card issuers typically calculate the monthly minimum payment in one of two ways:
- Percentage Method: With the percentage method, the minimum payment is equal to a percentage of the outstanding balance. While the actual percentage used varies from one credit card issuer to the next, it typically ranges from 2 to 4%.
- Percentage + Interest and Fees Method: The most prevalent method based on our research, issuers set the minimum payment as a percentage of the outstanding balance plus all outstanding interest charges and fees. With this method, most issuers charge 1% of the outstanding balance.
In addition to these formulas, credit card issuers also set a minimum payment floor. This floor typically ranges between $25 and $35, meaning your minimum payment will never be lower than this amount (unless your outstanding balance is below these levels).
Credit Card Minimum Payments by Issuer
Minimum payment calculations vary from one credit card company to the next. They can also be different from one card to the next issued by the same company. With these caveats in mind, here are methods used by major credit card issuers.
Chase
Chase calculates the minimum payment by multiplying the outstanding balance by 1% and then adding interest charges and fees if any. The minimum payment will be at least $35 (or the outstanding balance if less than $35).
Here's the description from Chase's cardmember agreement:
Minimum Payment: We will calculate the minimum payment as the larger of: 1) $35 (or total amount you owe if less than $35); or 2) the sum of 1% of the new balance, the periodic interest charges, and late fees we have billed you on the statement for which your minimum payment is calculated.
Source: https://www.chase.com/content/feed/public/creditcards/cma/Chase/COL00055.pdf
Wells Fargo
Wells Fargo uses the same 1% plus fees and interest formula. Its minimum payment is $25.
Minimum Payment. Your Minimum Payment Due includes any amount past due plus the greater of:
1. The sum of late, returned check, returned payment, rush plastic, and annual fees and interest billed during the Billing Cycle for which the Minimum Payment is calculated plus 1% of the New Balance shown on the billing statement; or
2.$25.00 (or the entire balance on the Account if the New Balance is less than $25.00).
Source: https://www.wellsfargo.com/credit-cards/agreements/visa-signature-agreement/
American Express
American Express operates with a $35 minimum payment. You'll pay the greater of $35 or 1% of the new balance plus interest and fees.
Bank of America
Bank of America uses 1% plus fees and interest charges to calculate the minimum payment on its credit cards. The payment will not be less than $25.
The Current Payment for each billing cycle includes three amounts: (1) 1.00% of your balance (your New Balance Total except for any new interest charges and any new Late Fee), and (2) new interest charges, and (3) any new Late Fee. Your current Payment will not be less than $25.00. We round the payment amount down to the nearest dollar.
Source:
https://www.bankofamerica.com/content/documents/visa-signature-en.pdf
Capital One
I couldn't find a disclosure of the minimum payment calculation on Capital One's website. I reached out to them via Twitter, and the response didn't answer the question. However, my Capital One business credit card calculates the minimum payment as 1% of the outstanding balance plus fees and interest.
Because I pay off the balance in full each month, my minimum payment doesn't include any fees or interest:
Note that if I were to make just the minimum payment until the card was paid off, it would take me 17 years!
Discover
While there are a number of articles online claiming to know how Discover calculates its minimum payment, none that I found links to a source. I also couldn't find this information on Discover's website. I reached out to Discover and received the following reply:
The payment calculation can vary per account. If you have a Discover Card with us, I'll be happy to review your account and provide the calculation based on the terms which can then be referenced for your article.
Source: Twitter message
After additional back and forth, they referred me to Discover's cardmember agreement. It turns out that they have at least three different agreements
Customers with excellent credit
The Minimum Payment Due will be any amount past due plus the greater of:
• $35; or
• 2% of the New Balance shown on your billing statement; or
• $20, plus any of the following charges as shown on your billing statement: fees for any debt protection product that you enrolled in on or after 2/1/2015; Interest Charges; and Late Fees
Customers whose credit needs improvement
The Minimum Payment Due will be the greater of:
• $20; or
• any past due amount plus the greater of:
— 3% of the New Balance shown on your billing statement (excluding any Interest
Charges and Late Fee shown on your billing statement); or
— $15, plus any of the following charges as shown on your billing statement: fees for any debt protection product that you enrolled in on or after 2/1/2015; Interest Charges; and Late Fees (not to exceed 4% of the New Balance).
Customers whose credit needs improvement–Secured Card
The secured card's minimum payment is calculated the same way Discover calculates the minimum payment for those whose credit needs improvement.
Citi
To start, if you have any outstanding fees or financing charges (ie. interest) due on a Citi card, that'll be added to your minimum payment for the month. Also, if you make the mistake of charging in excess of your credit line, you'll have to pay the excess charges right away.
Citi will then charge you whichever of the following is the largest:
- Your whole new balance if it's less than $25
- 1% of the new balance plus any applicable fees
- 1.5% of the new balance
Barclaycard
According to Barclaycard's standard agreement, your minimum payment is at least $25. Beyond that, you'll pay 1% of the principal balance plus interest charges plus any added fees. Here are the details:
(1) If the Statement Balance is less than $25-$27, the Minimum Payment Due equals the Statement Balance shown on your monthly statement.
(2) If the Statement Balance is $25-$27 or more, the Minimum Payment Due equals the greater of $25-$27 or the total of:
- 1% of the Principal Balance (defined below),
- Any interest charges billed on the monthly statement (excluding any interest charges that accrued on a deferred interest balance that ended during the billing cycle covered by the statement),
- Any Minimum Interest Charge,
- Any Returned Payment Fee, and
- Any Late Payment Fee.
U.S. Bank
U.S. Bank's minimum payment is $30, but you'll pay the greater of $30 or 1% of the balance plus finance charges and fees. If your balance is less than $30, you can just pay it off.
From the U.S. Bank cardmember agreement:
Your minimum due is 1% of your Statement Balance or $30 (whichever is greater) + Late Fee + Account Fees + Interest Charges + any amount over the Credit Limit/Revolve Line of Credit. Account Fees could include an annual fee among other account fees. If the resulting Minimum Payment is greater than $30, the total is then rounded to the next highest dollar not to exceed the New Balance.
Note that the above applies to personal credit cards.
6 Things That Affect Your Minimum Monthly Payment
As you can see, credit card company's minimum payment calculation methods are similar. Most operate by requiring customers to pay the larger of two or three options, and most options include finance charges added to a percentage of the balance.
What this means is that, in most situations, you'll be paying the finance charges on your credit card, plus a small percentage of the balance. You're paying a very small percentage of principal each month, though, which is why it often takes years to pay off credit cards making just the minimum payment.
It's difficult to work out your minimum payments ahead of time because the math that goes into them is complicated. Not only do you need to know which of these payment methods is used, but you also need to understand how your finance charges are calculated.
Generally, however, here are several situations that will affect your minimum payment.
You Pay Less Than the Minimum Payment
Paying less than the minimum payment may result in a fee and additional interest charges. This fee and any additional interest charges will then be added to the minimum payment the following month.
You Make the Minimum Payment But After the Due Date
Making the minimum payment after the due will result in a late payment fee. This fee will be added to the next month's minimum payment.
You Pay the Minimum Payment on Time
Making the minimum payment on time will reduce your outstanding balance. Assuming you haven't incurred additional charges on the card, the lower balance will result in a lower minimum payment the following month.
You Pay More than the Minimum Payment
By paying more than the required minimum payment, you lower the outstanding balance even further. Again assuming no additional charges were made using the credit card, this will further reduce your required minimum payment the following month.
You Exceed the Card's Credit Limit
Credit card issuers charge a fee if you exceed the available credit limit on a card. This fee will be added to your minimum payment the following month.
You Charge Additional Purchases to the Card
Making additional purchases with the card will increase the outstanding balance. All other things being equal, these charges will increase the minimum payment due the following month.
Finding Your Minimum Payment Information
One of the best things about the 2009 Credit CARD Act is that it standardized information on credit card bills. Plus, the act made the information much easier to find and understand.
Each time you get a paper or electronic credit card bill, there should be a section showing your minimum payment and exactly what making that payment means for your long-term credit usage. The section will look something like this:
How Long to Pay Off Credit Card Debt
How long it will take you to pay off your credit card debt depends on several factors, including:
- Whether you make additional charges on the card
- The interest rate
- Whether you make only the required minimum payment each month or pay extra
The key here is to understand that if you make just the minimum payment each, it will likely take years to pay off the card. That's because, as noted above, the minimum required payment goes down as the outstanding balance goes down. The result is years to pay off the card and substantial interest charges.
Credit Card Minimum Payment FAQs
What happens if I make just the minimum payment on my credit cards?
Making just the minimum payment will result in substantial interest charges. It could also mean that it will take years, sometimes decades, to pay off your credit card debt.
How do credit cards calculate the minimum payment due?
While the actual calculation varies from one credit card to the next, generally they charge a percentage of the outstanding balance plus all outstanding interest charges and fees.
What happens if I fail to make the minimum payment on time?
The credit card issuer will charge you a late payment fee. You may also incur additional finance charges. The late payment will also be reported to one or more credit bureaus, potentially resulting in a lower credit score.
Should you pay more than the minimum?
Because credit cards tend to charge high interest rates, paying down the balance as quickly as possible is generally the best approach. Of course, it's important to weigh paying down a card with other financial obligations you may have. But the minimum payment should not be viewed as anything more than the absolute minimum that needs to be paid to satisfy your contractual obligation to the credit card company.
Is the minimum payment the same as the outstanding balance?
No. The minimum payment and total balance owed are different. The minimum payment is simply the amount that must be paid that month to keep your credit card account current. In contrast, the balance owed is the total owed on the card, which can be substantially higher than the minimum payment.
