Credit Card Minimum Payment

Credit card minimum payment is typically a certain percentage of the credit card balance, usually around three percent. People often prefer to make only the minimum payment on credit cards, since it helps to enjoy higher levels of credit without worrying about lump sum payments.

 

In order to calculate the credit card minimum payment, the following variables are required:

 

First, multiply the monthly balance with the interest rate and divide the result by 12. This figure represents the first half of the credit card minimum payment for a month.

 

Next, multiply the monthly balance with the minimum monthly payment percentage and convert the resultant figure into decimals. This represents the second half of the credit card minimum payment for the month.

 

Finally, add the first and second result to arrive at the net credit card minimum monthly payment. Keep in mind that this estimate does not take into account any annual charges and late fees.

 

Although paying just the minimum amount seems a tempting alternative, doing so will result in a significant accumulation of debt over time. The minimum payment is computed at such a slow rate that it could take years to payoff even a relatively small debt.

 

One must keep in mind that making minimum payments regularly does not illustrate sound creditworthiness. Rather, continual use of a credit card will worsen the credit rating, as credit card debt reduces the spending power drastically. Too many open lines of credit can hinder the ability to acquire additional loans and mortgages.

 

Therefore, one must attempt to pay more than the credit card minimum payment for the month. However, if an individual is unable to make payments greater than the minimum, s/he should set out to lower the interest rates. One can seek the guidance of a credit counselor on how to proceed with this process. Thereafter, a cardholder must prioritize which credit card to be paid off first, and figure out a strategy to pay more than the credit card minimum payment. A credit card payoff calculator can also help in this regard.