# Minimum monthly payment

Q. How do credit card companies figure the minimum monthly payment?

The minimum monthly payment is based on the account balance rather than the particular interest rate. It's typically around two percent of the account balance.

Both the minimum monthly payment and the account balance are stated on the credit card statement. The monthly minimum percentage can be calculated by dividing the minimum monthly payment by the account balance. The following is an example of how to compute the minimum monthly percentage on an account with a balance of \$1,000, and minimum monthly payments of \$20 and \$25:

 Account balance Minimum monthly payment per statement Calculation Minimum monthly percentage \$1,000 \$20 \$20 divided by \$1,000 2.0% \$1,000 \$25 \$25 divided by \$1,000 2.5%

Paying only the minimum monthly payment is a fool's game. In most cases, the bulk of the minimum payment goes toward interest, and a smattering goes toward principal. If your prior month's payment was late and you get hit with a \$29 late fee, chances are none of the payment will go toward principal. Thumbs-up for the credit card company; thumbs down for you.

The following table illustrates how much you will save in interest if you make more than the minimum monthly payments on a credit card with a \$1,000 balance and a 19 percent interest rate.

 \$1,000 credit card balance 19 percent APR 2 percent minimum payment Monthly payments Time to pay off debt* Total interest you will pay* Minimum (Starts at \$20 and goes down a little each month) 22 years \$2,400 Fixed \$20 8 years \$1,000 Fixed \$30 4 years \$450 Fixed \$40 3 years \$300 *years and amounts have been rounded-off for illustration purposes

To find out what it's going to cost you in interest to make the minimum credit card payment vs. a fixed amount each month, enter your numbers in Bankrate's calculator "The true cost of paying the minimum."

 -- Posted: Aug. 14, 2002

 Bankrate.com's corrections policy

Credit Cards
Compare weekly rates
WEEKLY AVERAGES
 Type Fixed Variable Standard 13.23% 14.82% Gold Platinum 12.70% 15.89% All 13.02% 15.61%

 RELATED CALCULATORS Loan calculator (includes amortization schedule) See your FICO score range -- free What will it take to pay off your credit card? VIEW ALL

BASICS SERIES
Credit Card Basics
 Don't get trapped by card debt. Learn to use it wisely.
 • How to find the best card • Check your credit report • Finance charges explained • How to ask for a lower rate • Improve credit with a card • How to repair your credit

 MORE ON BANKRATE
Banking glossary
News archive
Keep an eye on the leading rates
Find a high-yielding CD