What Is a Minimum Payment?

The minimum payment is the least amount you are required to pay to keep your credit card account in good standing with the creditor. It is calculated monthly based on your balance at the end of each billing cycle. Commonly only 1-3% of the statement balance is the minimum due. This can be a relief when you find yourself in a tight spot, but paying just the minimum will keep you in debt longer. Let’s lay out some of the pros and cons to help determine if paying the minimum payment is the best option for you.

Pros and Cons of Minimum Payments

We all know paychecks are used up a lot faster than the next paycheck ever comes. That is why the minimum payment can be so tempting. It gives us the opportunity to avoid paying out so much money all at once. There are several benefits of minimum payments:

  • Affordability
  • Creates less stress for unexpected expenses
  • Provides more time to repay

Let’s face it, minimum payments can be extremely helpful in the short term.

However, if you want to free up more of your paycheck, you will have to repay a debt as quickly as possible. Consider these cons for minimum payments:

  • You will repay a higher amount in the end, due to interest.
  • Keeps you in debt for a longer period of time.
  • You are more likely to add to the debt before paying it off.

Other Options

Just like anything else, you have to gather the information and make the best decision for yourself and your current circumstances. Experts suggest that you pay the statement balance in full every month. The benefits of this can be great! It will boost your credit score, but also, for most creditors, if you pay the full statement balance by the due date, you avoid getting charged the interest that month.

If paying the full statement balance is not feasible, paying ANY amount above the minimum payment will help you pay off the balance off faster, avoid a higher interest charge, and improve your credit score. If all else fails, paying at least the minimum payment will keep you in good standing and avoid additional fees on the account.

If you are having trouble paying off debt or simply making ends meet, it could be in your best interest to create a budget and evaluate your spending vs. income. If you are still having trouble following your self-evaluation and you are feeling overwhelmed, search for debt relief agencies and see if your credit union has financial counselors that can help you.