How does your credit card issuer determine your minimum payment? Well, it's different for each issuer, but for the most part, it is 2 percent to 4 percent of your balance. To calculate your minimum payment, grab your last credit card statement and a calculator.

Let's say you have a balance of \$1,200 on one of your credit cards and your interest rate stands at 15 percent with your minimum payment at 2 percent.

First, take your balance of \$1,200 and multiply that by your monthly minimum payment of 2 percent.

\$1,200 x .02 = \$24.00

So, \$24.00 is the monthly minimum you must pay on your credit card for that month. But how much of that \$24 goes toward interest and principal?

Well, divide your interest rate of 15 percent by 12 months and then multiply it by your balance of \$1,200.

.15/12 x \$1,200 = \$15.00

The interest you will have paid for that month is \$15.00. That means that of the \$24 payment only \$9 is actually going to pay down your principal. If you don't spend any more money until your next payment is due, then your balance will be \$1,191.00 (\$1,200 minus \$9 of principal = \$1,191).

If you were to keep paying at this pace, it would take you 196 months (16 years and three months) and \$1,456.31 in interest to pay off that \$1,200 debt. To determine the true cost of your monthly minimum payment and how long it will take to pay off your card, visit Bankrate's minimum payment calculator. You can also use the calculator to see how paying more than the monthly minimum payment can dramatically reduce both the interest you pay and reduce how long it takes you to payoff that debt.

Remember, other fees such as late payments, over-limit fees, credit insurance and processing fees could also calculate into your minimum monthly payment, so examine your statement closely each month.

 -- Posted: May 3, 2005

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