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The Formula for your Credit Card Minimum Payment

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When you get your credit card statement Every month credit card companies ask you to make a minimum payment towards your balance.

That minimum balance almost never covers your full balance, especially if you’re carrying a relatively large balance.

Have you ever wondered how credit card companies figure out your minimum payment each month? Is it an arbitrary number they pull out of thing air, or something you can plan for?

The truth is, it’s pretty straightforward. Here’s how they do it.

The Minimum Payment

Credit card issuers use a simple formula to calculate your minimum payment. There are two basic ways they calculate it that involves two components:

  1. The percentage of your balance
  2. and a minimum flat fee

Here’s how it all works.

The Percentage of Your Balance If your balance is over a certain amount, credit card companies will bill you a percent of your balance each month.

This percentage can range anywhere from 1% to 3%. So, if you have a balance of $1,000, you’ll have to pay at least $10 to $30 of that each month.

This fee can differ from company to company, but you can easily determine how much yours is by dividing your minimum by your balance.

Minimum Payment / Toral Balance = minimum percent

For example:

$30 / $1,000 = 0.03 or 3%

The Flat Fee The second component of your minimum payment is the flat fee. This is an additional fee that credit card companies require you to pay each month. This fee is usually in the range of $15 to $25. So, if you have a balance of $1,000, you’ll have to pay at least $15 to $25 of that each month.

Put Together When you put both components together, you get the total minimum payment that credit card companies require you to pay each month. For example, if you have a balance of $1,000 and your credit card issuer requires you to pay 1% of your balance plus a flat fee of $20, then your total minimum payment will be $30.

Your Minimum Payment May Change

Keep in mind your minimum payment may change from month to month.

Since your balance will change as you run up or pay down your credit card balance, the percentage of your balance and the flat fee will change based on the new total balance each month.

So if your balance increases, your minimum payment will also increase. To ensure that you’re making the minimum payment required by your credit card issuer, review your balance each month and adjust your payment accordingly.

As you pay down your balance, your minimum payment will decrease alongside your balance.

Pre plan and See it in action

If you want to see how your minimum balance changes and how much you’ll pay in interest over time, download the Credit Card Payoff Template built for Google Sheets and set up your payoff plan.

Ask your credit card issuer

If you want to know exactly what your credit card issuer is calculating your minimum payment, call the number on the card and ask how they determine the minimum monthly payment.

Zero interest credit cards

Some credit cards offer low or even zero minimum monthly payments for an introductory period.

These cards are great for balance transfers or large purchases. Be cautious though as these cards can come with higher interest rates, so it’s important to read the fine print and make sure you pay off the balance before the introductory period is over

Putting it all together

Now that you know how credit card companies calculate your minimum payment, you can plan your credit card strategy better. Paying only the minimum balance can make it take longer to pay off the full balance and make you pay more in interest.

If you can it’s always a good idea to pay more than the minimum payment and avoid costly interest charges.

Aim to pay off your balance in full each month if you can and make sure to always pay on time to keep your credit score in good standing.

To create a credit card payoff plan and see your payoff date, total interest paid, and plan the best strategy, download the Credit Card Payoff Google Sheets Template here.


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