Do You Have to Pay the Minimum Payment on a Credit Card?

Credit cards offer a convenient financial tool, providing flexibility for purchases and managing expenses. This convenience comes with specific financial obligations. A primary responsibility is making the minimum payment each billing cycle, which is the smallest amount required to keep an account in good standing.

The Minimum Payment Obligation

Making the minimum payment is a mandatory contractual obligation for all credit card account holders. This payment typically covers accrued interest charges, fees, and a very small portion of the outstanding principal balance. A common calculation involves a percentage of the total outstanding balance (1% to 3%) plus any past due amounts or fees. Some issuers might also set a fixed dollar amount, such as $25, if the calculated percentage is lower. It is important to meet this obligation by the specified due date each billing cycle to maintain account health.

Consequences of Not Making the Minimum Payment

Failing to make the minimum payment by the due date results in immediate repercussions. Issuers charge a late fee ($30-$41), and the Annual Percentage Rate (APR) can increase to a “penalty APR” (29.99% or more) on the entire outstanding balance. Missed payments are reported to major credit bureaus (Experian, Equifax, TransUnion) after 30 days past due, decreasing your credit score and affecting future borrowing opportunities. If payments continue to be missed, the account risks default and debt collection. Any introductory or promotional APRs may also be revoked.

Financial Implications of Only Paying the Minimum

Consistently paying only the minimum required amount, even if on time, carries significant financial drawbacks. Because the minimum payment largely covers accrued interest and fees, a very small portion of the payment goes towards reducing the actual principal balance of the debt. This slow principal reduction leads to more interest accruing on a larger outstanding balance over a longer period, significantly increasing the total cost of the debt. This practice can stretch the repayment period for a debt over many years, keeping the borrower in debt for a much longer time than if larger payments were made. For example, a seemingly small credit card balance of a few thousand dollars could take over a decade to pay off if only minimum payments are made, accumulating substantial interest charges, making the total amount paid back substantially higher due to prolonged interest accumulation.