1. What is the Minimum Payment Formula?

The minimum payment formula calculates how long it will take to pay off credit card debt making only the minimum payments. It accounts for the principal balance, minimum payment amount, and the annual percentage rate (APR).

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( P \) — Principal balance ($)
• \( MP \) — Minimum payment ($)
• \( R \) — Monthly interest rate (APR / 12)
• \( T \) — Time to pay off (months)

Explanation: The formula calculates how many months it would take to pay off the debt when making only minimum payments, considering the compounding interest.

3. Importance of Minimum Payment Calculation

Details: Understanding how long it takes to pay off debt with minimum payments helps consumers make informed decisions about credit card usage and debt repayment strategies.

4. Using the Calculator

Tips: Enter your current credit card balance, the minimum payment amount (or percentage of balance), and your card's APR. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does paying only the minimum take so long?
A: Minimum payments are typically small (often 1-3% of balance), so most of your payment goes toward interest rather than reducing principal.

Q2: What if my minimum payment changes?
A: This calculator assumes fixed minimum payments. If your minimum is percentage-based, the calculation becomes more complex as your balance decreases.

Q3: How can I pay off my debt faster?
A: Pay more than the minimum, even slightly higher payments can significantly reduce payoff time and interest paid.

Q4: Are there limitations to this calculation?
A: Yes, it assumes no additional charges, fixed APR, and fixed minimum payment amount. Real-world scenarios may vary.

Q5: What's a good strategy for paying off credit cards?
A: Consider the avalanche method (paying highest APR cards first) or snowball method (paying smallest balances first for psychological wins).