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Minimum Payment Formula:
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The minimum payment is the lowest amount you must pay on your credit card balance each month to avoid late fees and penalties. Credit card issuers typically calculate this as either a percentage of your balance or a fixed minimum amount, whichever is greater.
The calculator uses the minimum payment formula:
Where:
Explanation: The calculator compares the percentage-based payment with the fixed minimum and selects the higher amount as your required payment.
Details: Understanding your minimum payment helps with budgeting and financial planning. While paying only the minimum keeps your account in good standing, it typically results in paying more interest over time.
Tips: Enter your current credit card balance, the percentage rate your issuer uses (typically 1-3%), and the fixed minimum amount (often $25-$35). All values must be positive numbers.
Q1: Why do credit cards have minimum payments?
A: Minimum payments allow cardholders to maintain their accounts while paying down balances over time, though paying only the minimum increases total interest costs.
Q2: Is it bad to pay only the minimum?
A: While it avoids penalties, paying only the minimum means you'll pay more interest and take longer to pay off your balance. Always pay more than the minimum when possible.
Q3: How is the percentage rate determined?
A: The rate is set by your credit card issuer and disclosed in your cardholder agreement, typically ranging from 1% to 3% of your balance.
Q4: Can the minimum payment change?
A: Yes, it changes with your balance and if the issuer modifies their terms (with proper notice).
Q5: What if I can't pay the minimum?
A: Contact your issuer immediately to discuss options, as missing payments can hurt your credit score and lead to penalty fees.