Credit Card Minimum Payment Calculator: How the Amount Is Determined
Understanding how your credit card calculates minimum payments can help you manage your debt and credit score.
Contributing Writer at Tally
February 7, 2022
Credit cards can add a lot of convenience to life, but as a cardholder, there are a lot of numbers to keep track of. One of the most important numbers to track is your minimum monthly payment amount.
Your minimum monthly payment can lead to loan rejections, missed payments and even a damaged credit score if not properly monitored. There are a few different credit card minimum payment calculators credit card companies use. Understanding the calculator your credit card issuer uses and how to use it yourself can give you a better sense of why your minimum payment is the amount it is and what your future minimum payments may be.
Below, we cover the main credit card minimum payment calculators, how they work and more key information on your minimum payment.
How credit card companies calculate your minimum payment
There are two main ways credit card issuers calculate your minimum monthly payment: flat percentage and percentage plus interest and fees. Here's how each one works.
Flat percentage method
The flat percentage method is about as straightforward as it comes. To determine your minimum monthly payment, the credit card company takes your statement balance and multiplies it by a flat percentage — typically 1% to 3%.
So, if you have a $1,000 statement balance with a 3% monthly minimum payment, your amount due on your bill would be $30. This $30 would cover your interest rate charges and fees first, and any remaining amount would pay down your principal balance.
Keep in mind that most credit cards set minimum monthly payment amounts, which are typically $15 to $25. You'll see this minimum payment when your balance is so low, the calculation would put it below the $15 to $25 threshold.
For example, if you had a $50 balance on a card with a 3% minimum payment, the credit card minimum payment calculator would end up at $1.50. If the credit card has a $25 minimum payment threshold, you’ll pay a $25 minimum payment instead of $1.50.
Percentage plus interest and fees method
The percentage plus interest and fees method is far more complex, but it is also the most consistent way to pay down your principal balance.
The credit card issuer uses a small percentage — often 1% — of your statement balance as the base principal payment, then it adds in all accrued interest and fees for the month to determine your minimum monthly payment.
So, let's say you have a $1,000 balance and have accrued $15 in credit card interest during the statement period, and the credit card company charges 1% of your statement balance as the base principal payment. In this case, the base principal payment would be $10, then you add the $15 in interest to get a total minimum payment of $25.
In this example, $10 would go toward paying down your principal balance. And each subsequent month, you will pay 1% toward your credit card balance.
This method will also have a lower threshold for the minimum monthly payment, just like the flat percentage rate calculation.
How to determine what minimum payment method your credit card uses
It's not always completely clear on your monthly statement as to what minimum payment method your credit card company uses. However, there are a few ways you can find it.
First, you can refer to the original terms and conditions when you received the credit card. This documentation will lay out how the company calculates your minimum monthly payment.
If you can't find this documentation, you can call the customer service number on your monthly statement or on the back of the credit card and ask the representative which method the company uses.
Where to find your minimum payment
You can find your minimum monthly payment in a few places: on your monthly paper statement, online and over the phone.
On your monthly paper statement, you'll find your minimum monthly payment on the payment stub on the statement's first page. Near this minimum monthly payment, you'll also find a minimum payment warning box that shows how long it'll take to repay the credit card debt and the total interest charges you'll pay if you make only the minimum payment each month.
You can also log on to the credit card's website or mobile app and find your minimum monthly payment.
Finally, you can call the customer service number on the back of the credit card and follow the prompts to get to your minimum monthly payment.
Why your minimum monthly payment is so important
Your minimum monthly payment is critical for several reasons. The biggest is it's the least you must pay by the due date to avoid being late. If you haven’t paid by the due date, the credit card company can assess a late fee the day after the due date.
Your first late fee, by law, can be no more than $30. Any additional late fees in the next six billing cycles can be up to $41.
If you miss your monthly minimum payment and don't pay it within 30 days of the due date, the credit card company may report it as 30 days late to the three major credit bureaus: Experian, Equifax and TransUnion. This would put a late payment mark on your credit report, which can have a significant negative impact on your credit score.
Your minimum monthly payment is also important for getting approved for other financial products. Your minimum monthly payments are what lenders base your debt-to-income (DTI) ratio on. If your DTI is too high, the lender won't approve you, even with a great credit score.
When to make only the minimum monthly payment
This depends on your situation. You should aim to pay more than your minimum payment if you can afford to. This not only helps you pay off your high-interest credit card debt quicker, but it also helps you save on interest charges.
Ideally, you’ll pay off the entire statement balance by your due date and pay no interest while still taking advantage of cash back. However, paying the full balance isn't something all borrowers can fit in their budget.
If your budget doesn't allow you to pay more than your minimum monthly payment, then yes, pay just the minimum monthly payment by your due date. As mentioned above, paying this minimum avoids potential late fees and damage to your credit report.
Your minimum credit card payment may vary each month
You'll likely notice that your monthly payment varies from month to month. This can happen for a few reasons.
First, as you make your monthly payments, you're paying down the balance, meaning the credit card company will base the following month's minimum payment on a lower statement balance. This will equal a slightly lower payment amount.
Second, if your card has a variable annual percentage rate (APR), a change in this can trigger a change in your monthly minimum payment if your credit card company uses the percentage plus interest and fees method. This is because the card rate directly affects the minimum payment.
Understanding the credit card minimum payment calculator is important
Knowing your minimum monthly payment is critical for budgeting. Even if you plan to pay off your entire balance every month, knowing the minimum payment gives you a baseline payment to account for if funds aren't available to pay the full statement balance. This will keep you from incurring late fees or, even worse, late payment marks on your credit report.
With a firm understanding of your credit card companies’ minimum payment calculator, you can predict your minimum payment in the next billing cycle and adjust accordingly.
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