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What Happens If I Only Pay The Minimum Payment On My Credit Card?

What is a reason to pay more than the minimum payment due on your credit statement each month? To avoid accumulating new interest.

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Updated August 19, 2024
Written by Rachel Alulis
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Key takeaways

  • Only making the minimum payment each month increases the total amount owed.
  • Settling the full balance saves you money and improves your credit score.
  • Managing your bills responsibly ensures financial stability and prevents long-term debt.

If you pay the minimum payment on your credit card each month, you may feel like you’re doing a good job, but the reality is you could be setting yourself up for failure. What is the problem with paying only your minimum credit card balance each month? The answer is simple: it prolongs your debt, potentially leading to higher costs and financial stress down the road.

Let’s go over exactly how this happens and what you can do to avoid falling into debt.

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Understanding credit card debt

Credit card debt occurs when you do not pay your full statement balance at the end of the billing cycle but carry a balance. The credit card company then charges you money on the unpaid amount. The APRs (annual percentage rates) on cards are notoriously high, meaning debt can quickly accumulate, especially if you’re only making minimum credit card payments. The higher your unpaid balance and APR, the more you’ll owe over time, making it harder to break free.

How are credit card minimum payments calculated?

How minimum payments are calculated depends on the issuer. Generally, they are a small percentage of your total outstanding balance, usually from 1% to 3%, plus interest and fees. Some issuers charge a fixed amount – typically $25 – or whichever is greater.

For example, if your balance is $1,000 and the percentage used is 2%, your minimum payment would be $20. If your total balance for a statement period is lower than $25, you will have to pay the entire balance. This calculation ensures that you cover some of the interest and fees, but it does little to reduce your principal.

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What to consider when paying the minimum credit card payment

Making minimum payments helps keep your account in good standing, but it prolongs the repayment period and increases the total amount you owe.

Take a look at your monthly statement. Credit card companies are required to put down how long it will take you to pay off your balance and how much interest you’ll pay if you only make minimum payments.

Let’s say you have a $1,000 balance, 20% APR, and a minimum payment of $20. If you pay the minimum amount, it will take you 9 years to pay off the balance and you’ll pay approximately $1,168 in interest. Take the same scenario but pay $100 a month, and you’ll pay off the balance in one year and pay roughly $103 in interest charges. Clearly, paying more will save you money in the long run.

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The consequences of only paying the minimum

If I pay the minimum credit card payment, do I get charged interest? The answer is yes—interest charges will be applied to the unpaid amount, increasing how much you owe and making it harder to reduce your balance. In the end, you could end up paying far more money than you originally spent.

The impact on your credit card bill

Paying only the minimum balance on your credit card can lead to several negative consequences that affect your financial health.

Paying more interest

If you pay only the minimum payment required, the remaining balance continues to accrue interest, which means you’ll pay significantly more over time.

Taking longer to pay off debt

The majority of your minimum monthly payment goes toward interest rather than reducing the principal balance. This can stretch your repayment period over many years, even for relatively small amounts.

Hurting your credit score

The amount spent relative to your credit limit is an important factor in determining your score. A high balance and, hence, a high credit utilization rate will lower your score, making it harder to borrow in the future.

The importance of paying more than the minimum

Paying more than the minimum payment (or paying your balance in full) is beneficial because it helps you avoid extra charges. You will save money, improve your credit score, and find greater financial stability. In fact, consumers who pay more than the minimum payment on credit cards are more likely to avoid debt altogether.

Reducing credit card debt faster

You should pay your credit card in full to get out of debt sooner. If that’s not possible then try to:

  • Pay more than the minimum amount
  • Target balances with the highest APR first
  • Consolidate your debt

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Strategies for paying more than the minimum

Knowing the difference between your statement balance vs. minimum payment is key. The monthly minimum payment is the smallest amount you can pay to keep your account in good standing. Only paying the minimum amount can lead to owing much more than you originally spent.

Here are some strategies to help you pay more than the minimum amount:

Find your statement balance

Start by identifying your statement balance. This is the total amount owed for the billing period including all charges, interest, and other fees. Aim to settle your balance in full to stay out of debt.

Stick to a budget

Budgeting is crucial. Track your income and expenses so you can allocate more funds toward paying down your credit card balances.

Increase the margin in your budget

Look for ways to increase how much money you can put towards your outstanding balances. Cut any unnecessary expenses and explore additional income sources. The more extra funds you can find to put towards your credit card balance, the faster you’ll reduce what you owe.

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Alternative options for paying off credit card debt

If you’re struggling to pay off existing credit card debt, try consolidating it to save money.

Consider a balance transfer

A balance transfer is when you move your existing credit card balances onto a new card with a low or 0% introductory APR. This can help you pay down your balances faster and save money. Be careful of balance transfer fees and make sure to pay off your balance during the introductory period.

Personal loan

Personal loans are another consolidation option. They often have lower APRs, which can reduce the total amount paid. The fixed repayment schedule can also make it easier to manage your debt.

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Best practices for credit card payments

credit card payment

To maintain a good score and avoid unnecessary debt, it’s important to:

  • Make on time payments
  • Don’t spend too much
  • Open new accounts only when needed

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Always pay by the due date

Pay your bill in full by the due date to avoid fees. Most credit card companies charge fees if you pay late and will report late payments. Consider setting up automatic payments or reminders to stay on top of your bills, avoid late fees, and save money.

Keep a low credit utilization ratio

Your credit utilization rate – the percentage of your available credit that you’re using – is an essential credit scoring factor. Aim to keep this rate below 30%. Regularly monitoring your spending and paying down credit card balances can help you keep your utilization rate low.

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The risks of not making the minimum payment

Failing to make at least the minimum monthly payments can have serious financial consequences.

What happens if I don’t make the minimum payment each month?

If you don’t make at least the minimum payment, the credit card company will consider it a missed payment. A missed payment can result in late fees and a negative mark on your credit report. Your issuer may also impose a penalty APR (higher than the normal APR) to your balance. Continued missed payments could lead to your account being sent to collections, significantly damaging your score and making it more difficult to borrow in the future. To avoid these consequences, at least make the minimum payment each month.

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Frequently asked questions

1. Why is it more difficult to get out of debt when only paying the minimum payment?

Paying only the minimum is a problem since the bulk of your payment goes toward interest payments rather than reducing your outstanding balance. This means your debt decreases very slowly, while interest continues to accumulate. Over time, you end up owing significantly more than you spent.

2. What happens if you only make the minimum payment on your credit card statement?

If you only make the minimum payment, you will avoid late penalties, but you will be charged interest on your remaining balance. As a result, your debt will grow.

3. Why is it so hard to get out of debt?

Getting out of debt is challenging because most of your minimum payment goes toward credit card interest rather than what you initially spent. This means that even though you’re making payments, your balance interest charges will continue to grow.

4. Should I pay off my credit card in full or leave a small balance?

Ideally, you’ll settle your credit card account in full each statement period. Carrying a balance does not help your credit score.

Bottom line

What is a reason to pay more than the minimum payment due on your credit statement each month? By paying more than the minimum payment amount due, you can reduce the principal faster, minimize the interest you owe, and shorten the time it takes to pay off your debt. This approach not only saves you money in the long run but also contributes to improving your overall financial health.

Making the minimum payment might seem like an easy way to manage your bills, but it can trap you in a cycle of debt that becomes increasingly difficult to break. Over time, you’ll end up paying significantly more in interest, extending your repayment period, and potentially harming your credit score.

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About the author

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

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